Monetary indicators continued to strengthen in May. Narrow money supply (M1) and broad money supply (M3) expanded by +10.3% YoY (Apr: +9.6% YoY) and +4.7% YoY (Apr: +4.4% YoY) respectively. Meanwhile, total leading loan indicators remained weak during the Conditional MCO. Non-residents increased local bond holdings but continued to sell equities amid cautious investor sentiment.

DATA HIGHLIGHTS

Monetary indicators continued to strengthen in May. Narrow money supply (M1) expanded by +10.3% YoY (Apr: +9.6% YoY) while broad money supply (M3) grew +4.7% YoY (Apr: +4.4% YoY). The increase was mainly driven by higher savings deposits. Reserve money declined at a quicker pace (-21.3% YoY; Apr: -13.9% YoY). Meanwhile, total leading loan indicators remained weak, as loan applications (-39.0% YoY; Apr: -41.4% YoY), approvals (-54.4% YoY; Apr: -48.4% YoY) and disbursements (-25.8% YoY; Apr: -28.1% YoY) continued to show double-digit contractions.

Deposits growth remained stable at +2.8% YoY (Apr: +2.8% YoY), supported by the increase in household deposits (+6.4% YoY; Apr: +6.2% YoY). This offset the moderation in foreign deposits (+1.3% YoY; Apr: +3.0% YoY) and decline in business deposits (-0.9% YoY; Apr: -1.6% YoY).

The household loan-deposit gap narrowed as household loans rebounded (+0.3%; Apr: -0.03%) while household deposits slowed (+0.7%; Apr: +1.7%) on a monthly basis. On a yearly basis, growth in household loans eased slightly to +3.2% YoY (Apr: +3.3% YoY). Household deposits grew +6.4% YoY (Apr: +6.2% YoY).

Total loans growth moderated slightly to +3.9% YoY (Apr: +4.0% YoY) amid softer growth in business (+4.5% YoY; Apr: +4.7% YoY) and household loans (+3.2% YoY; Apr: +3.3% YoY). Disbursements and repayments remained at subdued levels in both sectors due to the loan moratorium measure and slow economic activity during the Conditional MCO. Meanwhile, gross issuance of corporate bonds increased to RM7.1bn (Apr: RM3.1bn).

Loan applications continued to decline (-39.0% YoY; Apr: -41.4% YoY) amid low household (-59.7% YoY; Apr: -74.2% YoY) and business loan applications (-12.1% YoY; Apr: -6.7% YoY). Consumer-related loan demand remained tepid, reflected by low applications for passenger cars (-58.8% YoY; Apr: -89.3% YoY), residential properties (-59.5% YoY; Apr: -72.1% YoY) and credit card (-67.6% YoY; Apr: -65.2% YoY). Most business subsectors recorded weak loan applications growth, with the exception of ‘transport, storage & communication’ and ‘education, health & others’. Meanwhile, loan approvals also contracted further (-54.4% YoY; Apr: -48.4% YoY).

Non-residents increased local bond holdings in May (+RM1.5bn; Apr: -RM1.9bn) following three consecutive months of outflows. The improvement in foreign demand may be attributed to global monetary policy measures which led to improvement in risk appetite. Meanwhile, non-residents sold equities at a faster pace (-RM3.1bn; Apr: -RM2.7bn).

HLIB’s VIEW

Despite the reopening of some economic sectors during the CMCO, consumers and businesses remained cautious as loan applications continued to decline. The surge in household saving deposits also reflected consumers’ plan to put their spending plans on hold. We maintain our expectation for BNM to reduce OPR by 25bps in 2H20.

Source: Hong Leong Investment Bank Research - 1 Jul 2020