Monetary indicators continued to strengthen in Sep. Narrow money supply (M1) expanded by +18.2% YoY (Aug: +17.8% YoY), while broad money supply (M3) growth sustained (+6.4% YoY; Aug: +6.4% YoY). Meanwhile, total leading loan indicators improved during the month. Foreigners continued to increase local bond holdings, albeit at a slower pace, and reduced equity holdings.

DATA HIGHLIGHTS

Monetary indicators continued to strengthen in Sep. Narrow money supply (M1) expanded by +18.2% YoY (Aug: +17.8% YoY), while broad money supply (M3) grew at a sustained pace (+6.4% YoY; Aug: +6.4% YoY). Reserve money continued to decrease (-19.5% YoY; Aug: -19.7% YoY). However, total leading loan indicators improved amid the turnaround in loan applications (+15.7% YoY; Aug: -13.7% YoY), approvals (+3.7% YoY; Aug: -13.2% YoY) and disbursements (+0.6% YoY; Aug: - 12.7% YoY).

Deposits growth accelerated to +5.2% YoY (Aug: +4.5% YoY), driven by higher household (+6.9% YoY; Aug: +6.5% YoY) and foreign deposits (+4.1% YoY; Aug: +1.5% YoY) which offset the moderation in business deposits (+2.1% YoY; Aug: +3.7% YoY).

The household loan-deposit gap widened following growth in household loans, albeit slightly slower (+0.8% MoM; Aug: +0.9% MoM), amid rebound in household deposits (+0.4% MoM; Aug: -0.3% MoM). On an annual basis, household loans (+5.2% YoY; Aug: +4.8% YoY) and deposits (+6.9% YoY; Aug: +6.5% YoY) picked up.

Total loans growth sustained at +4.4% YoY (Aug: +4.4% YoY), supported by higher household loans growth (+5.2% YoY; Aug: +4.8% YoY) owing to disbursements for the purchase of passenger cars and residential properties. This offset slower business loans growth (+2.7% YoY; Aug: +3.3% YoY), given lower disbursements relative to repayments. Meanwhile, gross issuance of corporate bonds rose to RM8.9bn (Aug: RM8.4bn).

Loan applications rebounded by +15.7% YoY (Aug: -13.7% YoY), led by the surge in household applications (+44.7% YoY; Aug: +9.9% YoY) due partly to low base effect. Business applications continued to decline but at a slower pace (-16.4% YoY; Aug: - 39.1% YoY), cushioned by higher applications in service-oriented sectors such as ‘education, health & others’ and ‘transport, storage & communication’. Meanwhile, loan approvals also recovered (+3.7% YoY; Aug: -13.2% YoY), propped up by higher household approvals (+24.7% YoY; Aug: -3.4% YoY) amid softer decline in business approvals (-17.7% YoY; Aug: -25.7% YoY).

Net foreign inflow for local bonds slowed to +RM0.7bn (Aug: +RM3.1bn), while net foreign outflow from equities steepened to -RM1.9bn (Aug: -RM0.1bn). On a quarterly basis, bond inflows were higher (+RM12.0bn; 2Q20: +RM11.4bn), while equity outflows eased (-RM4.5bn; 2Q20: RM-8.8bn).

HLIB’s VIEW

In 3Q20, loan applications rebounded by +1.8% YoY (2Q20: -26.4% YoY) as spending activity resumed under Recovery MCO. Nevertheless, loan demand in the 4Q20 could be muted due to re-imposition of Conditional MCO in some states that account for 47.2% of Malaysia’s GDP. Against the backdrop of 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 - 2 Nov 2020