Monetary indicators were mixed in Oct. Narrow money supply (M1) expanded by +19.2% YoY (Sep: +18.2% YoY), while broad money supply (M3) growth moderated (+5.3% YoY; Sep: +6.4% YoY). Meanwhile, total leading loan indicators were weaker during the month. Foreigners continued to sell off their equity holdings but increased holdings of local bonds.

DATA HIGHLIGHTS

Monetary indicators were mixed in Sep. Narrow money supply (M1) continued to surge (+19.2% YoY; Sep: +18.2% YoY), while broad money supply (M3) growth moderated (+5.3% YoY; Sep: +6.4% YoY). Reserve money continued to decline (-19.7% YoY; Sep: -19.5% YoY). Meanwhile, total leading loan indicators weakened for the month following a decrease in loan applications (-6.1% YoY; Sep: +16.6% YoY) and slowdown in loan approvals (+0.8% YoY; Sep: +4.8% YoY). Loan disbursements registered a slight uptick (+1.5% YoY; Sep: +1.4% YoY).

Deposits growth softened to +4.4% YoY (Sep: +5.2% YoY) amid depressed foreign deposits (+0.4% YoY; Sep: +4.1% YoY) and business deposits (0.0% YoY; Sep: +2.1% YoY), which offset the rise in household deposits (+7.3% YoY; Sep: +6.9% YoY).

The household loan-deposit gap slightly narrowed, due to slower growth in household loans (+0.3% MoM; Sep: +0.8% MoM) amid steady growth in household deposits (+0.4% MoM; Sep: +0.4% MoM). On a yearly basis, household deposits (+7.3% YoY; Sep: +6.9% YoY) outpaced the growth in household loans (+5.1% YoY; Sep: +5.2% YoY).

Total loans growth edged lower (+4.3% YoY; Sep: +4.4% YoY) due to moderation in household (+5.1% YoY; Sep: +5.2% YoY) and business loans (+2.5% YoY; Sep: +2.7% YoY). Meanwhile, gross issuance of corporate bonds jumped to RM16.2bn during the month (Sep: RM8.9bn), led by rated corporate bond issuers from the financial services sector.

Loan applications declined by -6.1% YoY (Sep: +16.6% YoY) following a steeper contraction in business applications (-26.1% YoY; Sep: -14.7% YoY). Almost all business sectors registered lower loan applications, with the exception of construction, transport, storage & communication and electricity, gas & water supply sectors. For the household sector, applications slowed to +11.2% YoY (Sep: +44.9% YoY) on the back of softer growth in applications for passenger cars and residential properties , while applications declined for credit card and personal use. Meanwhile, loan approvals decelerated (+0.8% YoY; Sep: +4.8% YoY) on lower business approvals (- 8.6% YoY; Sep: -15.6% YoY) and slower growth in household approvals (+7.7% YoY; Sep: +24.9% YoY).

Foreign holdings of local bonds jumped to +RM8.9bn in Oct (Sep: +RM0.7bn), but holdings of equity continued to decline, albeit at a slower pace (-RM0.7bn; Sep: - RM2.0bn).

HLIB’s VIEW

Business loan applications have continued to decline for seven straight months since Apr 2020, pointing to prudent behaviour as the ongoing pandemic continued to affect business performance. This is consistent with DOSM’s latest confidence indicator which showed that businesses remain pessimistic despite a better outlook in 4Q20 (- 10.8%; 3Q20: -21.0%). 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 - 1 Dec 2020