Monetary indicators continued to strengthen in Aug. Narrow money supply (M1) and broad money supply (M3) expanded by +17.8% YoY (Jul: +15.7% YoY) and +6.4% YoY (Jul: +6.1% YoY) respectively. Meanwhile, total leading loan indicators weakened during the month. Foreigners continued to increase holdings of local bonds but reduced holdings of equities.

DATA HIGHLIGHTS

Monetary indicators continued to strengthen in Aug. Narrow money supply (M1) expanded by +17.8% YoY (Jul: +15.7% YoY), driven by surge in demand deposits (+18.0% YoY; Jul: +14.9% YoY), while broad money supply (M3) grew +6.4% YoY (Jul: +6.1% YoY). The decline in reserve money steepened slightly (-19.7% YoY; Jul: -19.0% YoY). However, total leading loan indicators contracted following lower loan applications (-13.7% YoY; Jul: +5.9% YoY), approvals (-13.2% YoY; Jul: -14.3% YoY) and disbursements (-12.7% YoY; Jul: -3.4% YoY).

Deposits grew at a steady pace of +4.5% YoY (Jul: +4.5% YoY), supported by pickup in business deposits (+3.7% YoY; Jul: +2.0% YoY) amid moderation in household (+6.5% YoY; Jul: +7.1% YoY) and foreign deposits (+1.5% YoY; Jul: +2.7% YoY).

The household loan-deposit gap widened following continued growth in household loans (+0.9% MoM; Jul: +1.1% MoM) amid lower deposits (-0.3% MoM; Jul: +0.6% MoM). On an annual basis, loans growth picked up (+4.8% YoY; Jul: +4.3% YoY) while deposits moderated (+6.5% YoY; Jul: +7.1% YoY).

Total loans growth eased slightly to +4.4% YoY (Jul: +4.5% YoY) as the increase in household loans (+4.8% YoY; Jul: +4.3% YoY) offset softer growth in business loans (+3.3% YoY; Jul: +3.9% YoY), which was mainly attributed to lower disbursements for working capital financing. Meanwhile, gross issuance of corporate bonds rose to RM8.4bn (Jul: RM7.0bn).

Loan applications fell -13.7% YoY (Jul: +5.9% YoY) as business loan applications sank (-39.1% YoY; Jul: -6.8% YoY) following lower applications across all sectors, except ‘electricity, gas & water supply’ and ‘education, health & others’. Household loan applications moderated to +9.9% YoY (Jul: +15.4% YoY) as loan demand for personal use (-16.0% YoY; Jul: -10.9% YoY) and credit cards (-20.0% YoY; Jul: - 5.9% YoY) declined at a faster pace, while demand for passenger cars (+47.7% YoY; Jul: +63.7% YoY) and residential properties (+16.8% YoY; Jul: +19.3% YoY) moderated. Meanwhile, loan approvals remained in negative territory (-13.2% YoY; Jul: -14.3% YoY) amid lower approvals in both business (-25.7% YoY; Jul: -22.6% YoY) and household sectors (-3.4% YoY; Jul: -7.8% YoY).

Net foreign inflow for local bonds eased to +RM3.1bn in Aug (Jul: +RM8.3bn), while net foreign outflow from equities eased to -RM0.1bn (Jul: -RM2.5bn).

HLIB’s VIEW

The decline in loan applications for businesses suggests companies continue to adopt a prudent behaviour as uncertainty remains. This could lead to lower investment plans and limit hiring intention. In line with this, DOSM’s Business Tendency Statistics showed that businesses remain cautious of their business performance in 3Q20 as confidence indicator improved marginally to -21.0% during the quarter, only a slight improvement from trough in 2Q20 of -25.2%. With uncertain growth outlook and muted inflation prospects, we expect BNM to maintain OPR at the current low level until 2021.

Source: Hong Leong Investment Bank Research - 1 Oct 2020