Monetary indicators strengthened in Feb. Narrow money supply (M1) and broad money supply (M3) expanded by +21.8% YoY (Jan: +19.1% YoY) and +5.1% YoY (Jan: +4.3% YoY) respectively. Meanwhile, total leading loan indicators worsened during the month. Foreigners continued to be net buyers of local bonds and net sellers of equities.

DATA HIGHLIGHTS

Monetary indicators strengthened in Jan. Narrow money supply (M1) expanded by +21.8% YoY (Jan: +19.1% YoY) owing to acceleration in currency in circulation (+23.3% YoY; Jan: +17.0% YoY) and demand deposits (+21.3% YoY; Jan: +19.8% YoY), while broad money supply (M3) rose +5.1% YoY (Jan: +4.3% YoY). Reserve money decreased at a softer pace (-10.7% YoY; Jan: -13.7% YoY). Meanwhile, total leading loan indicators worsened following lower loan applications (-15.4% YoY; Jan: +9.7% YoY) and approvals (-18.4% YoY; Jan: -3.5% YoY), while loan disbursements moderated (+7.0% YoY; Jan: +8.7% YoY).

Deposits rose +5.2% YoY (Jan: +5.0% YoY), supported by uptick in household deposits (+6.8% YoY; Jan: +6.7% YoY) and rebound in foreign (+2.0% YoY; Jan: - 1.0% YoY) and business deposits (+1.1% YoY; Jan: -0.2% YoY).

The household loan-deposit gap narrowed following slower growth in household loans and deposits of +0.1% MoM (Jan: +0.2% MoM) and +0.5% MoM (Jan: +0.8% MoM) respectively. On an annual basis, household loans (+5.1% YoY; Jan: +4.9% YoY) and deposits ticked higher (+6.8% YoY; Dec: +6.7% YoY).

Total loans growth slightly eased to +3.7% YoY (Jan: +3.8% YoY), supported by household loans (+5.1% YoY; Jan: +4.9% YoY) amid softer business loans growth (+1.0% YoY; Jan: +1.5% YoY). Meanwhile, gross issuance of corporate bonds increased to RM5.3bn (Jan: RM2.5bn), due to corporate (RM2.3bn) and quasi government bond issuers (RM2.2bn).

Loan applications sank (-15.4% YoY; Jan: +9.7% YoY) as business applications fell (- 26.9% YoY; Jan: -15.7% YoY) alongside household applications (-5.8% YoY; Jan: +30.6% YoY). Loan applications declined across most business sectors, with the exception of mining, education and health sectors, while loan demand for households mostly weakened for credit cards (-28.2% YoY; Jan: -23.0% YoY) and passenger cars (-17.7% YoY; Jan: +8.1% YoY). Similarly, loan approvals dropped during the month (- 18.4% YoY; Jan: -3.5% YoY) owing to lower business (-37.2% YoY; Jan: -17.5% YoY) and household loan approvals (-1.9% YoY; Jan: +8.8% YoY).

Foreigners ramped up their holdings of local bonds in Feb (+RM6.9bn; Jan: +RM3.5bn), which could be attributed to local bonds’ attractive yield spreads following the global bond rout. However, foreigners continued to sell off their equity holdings (- RM0.9bn; Jan: -RM0.8bn).

HLIB’s VIEW

Loan applications dipped in Feb, when most states were placed under MCO/CMCO 2.0. The decline (-15.4% YoY) was the largest since May 2020 (-39.0% YoY) when lockdown measures were also in place, although the decline was not as severe. Loan applications growth is expected to trend higher in 2Q21, partly due to low base effect. Meanwhile, FTSE Russell’s decision to remove Malaysia from its watchlist of possible exclusion and retain its membership in the World Government Bond Index (WGBI) could also lead to higher bond inflows owing to improved foreign investor confidence.

Source: Hong Leong Investment Bank Research - 1 Apr 2021