Monetary indicators grew at a softer pace in Dec. Narrow money supply (M1) eased to +15.7% YoY (Nov: +20.0% YoY), while broad money supply (M3) softened to +4.0% YoY (Nov: +5.2% YoY). Meanwhile, total leading loan indicators improved during the month. Foreigners remained net buyers of local bonds but continued to sell off equity holdings.

DATA HIGHLIGHTS

Monetary indicators eased in Dec. Narrow money supply (M1) and broad money supply (M3) expanded at a more modest pace of +15.7% YoY (Nov: +20.0% YoY) and +4.0% YoY (Nov: +5.2% YoY) respectively. Reserve money declined at a steeper pace (-16.1% YoY; Nov: -15.2% YoY). Meanwhile, total leading loan indicators improved strong rebound in loan applications (+12.3% YoY; Nov: -5.1% YoY) and marginal decline in loan approvals (-0.1% YoY; Nov: -4.2% YoY). However, loan disbursements recorded a larger decline (-2.5% YoY; Nov: -1.1% YoY).

Deposits growth ticked higher (+4.5% YoY; Nov: +4.4% YoY), supported by household deposits (+6.6% YoY; Nov: +7.1% YoY) which offset the drop in foreign (- 4.3% YoY; Nov: +1.3% YoY) and business deposits (-0.04% YoY; Nov: +1.8% YoY).

The household loan-deposit gap widened following larger pickup in household loans (+0.6% MoM; Nov: +0.4% MoM) relative to deposits (+0.2% MoM; Nov: +0.1% MoM). On an annual basis, household loans steadied (+5.0% YoY; Nov: +5.0% YoY) while deposits moderated to +6.6% YoY (Nov: +7.1% YoY).

Total loans growth moderated to +3.4% YoY (Nov: +3.8% YoY) following softer business loans (+0.5% YoY; Nov: +1.2% YoY) amid steady household loans (+5.0% YoY; Nov: +5.0% YoY). Meanwhile, gross issuance of corporate bonds fell to RM8.5bn (Nov: RM16.6bn).

Loan applications posted a strong rebound (+12.3% YoY; Nov: -5.1% YoY), driven by household applications (+24.6% YoY; Nov: +21.7% YoY) amid smaller decline in business applications (-4.5% YoY; Nov: -30.1% YoY). In the household sector, loan demand was primarily for residential properties (+34.3% YoY; Nov: +27.3% YoY), passenger cars (+24.9% YoY; Nov: +31.8% YoY) and personal use (+6.9% YoY; Nov: -2.5% YoY). For businesses, the decline was mainly cushioned by higher applications in ‘transport, storage & communication’ and ‘finance, insurance & business activities’ sectors. Meanwhile, loan approvals marginally declined (-0.1% YoY; Nov: -4.2% YoY) due to higher household loan approvals (+14.1% YoY; Nov: +12.3% YoY) and smaller decline in business loan approvals (-13.4% YoY; Nov: - 20.6% YoY).

Foreign holdings of local bonds gathered pace in Dec (+3.6bn; Nov: +RM2.5bn), marking the eighth straight month of bond inflows following investors’ continued search for yield. However, foreigners continued to sell off equity holdings, albeit at a slower pace (-RM0.6bn; Nov: -RM1.0bn).

HLIB’s VIEW

In 4Q20, total loan applications slowed to +0.4% YoY (3Q20: +2.9% YoY) amid reinstatement of stricter virus containment measures. Loan demand is expected to remain subdued in 1Q21 due to MCO2.0. The persistent high number of infections, weaker mobility pose downside risks to growth. Hence, we opine that BNM may reduce OPR by another 25bps to 1.50% in 1H 2021.

Source: Hong Leong Investment Bank Research - 2 Feb 2021