Monetary indicators were mixed in Mar. Narrow money supply (M1) eased to +19.0% YoY (Feb: +21.8% YoY) while broad money supply (M3) expanded by +6.1% YoY (Feb: +5.1% YoY). Meanwhile, total leading loan indicators improved during the month. Foreigners continued to be net buyers of local bonds and net sellers of equities.

DATA HIGHLIGHTS

Monetary indicators were mixed in Mar. Narrow money supply (M1) eased to +19.0% YoY (Feb: +21.8% YoY) while broad money supply (M3) expanded by +6.1% YoY (Feb: +5.1% YoY). Reserve money recorded its first increase since Feb 2020 by +6.4% YoY (Feb: -10.7% YoY) due to low base effect. Meanwhile, total leading loan indicators improved following higher loan applications (+43.9% YoY; Feb: -15.4% YoY), approvals (+34.0% YoY; Feb: -18.4% YoY) and disbursements (+29.6% YoY; Feb: +7.0% YoY).

Deposits rose +5.9% YoY (Feb: +5.2% YoY), driven by stronger foreign deposits (+5.8% YoY; Feb: +2.0% YoY) and business deposits (+2.9% YoY; Feb: +1.1% YoY), while household deposits slightly eased (+6.6% YoY; Feb: +6.8% YoY).

The household loan-deposit gap narrowed following the pickup in household deposits (+0.7%; Feb: +0.5%) and household loans (+0.4%; Feb: +0.1%) on a monthly basis. On an annual basis, household loans picked up (+5.7% YoY; Feb: +5.1% YoY) while deposits moderated (+6.6% YoY; Feb: +6.8% YoY).

Total loans growth increased to +3.9% YoY (Feb: +3.7% YoY), supported by higher household (+5.7% YoY; Feb: +5.1% YoY) and business loans (+1.1% YoY; Feb: +1.0% YoY). Meanwhile, gross issuance of corporate bonds rose sharply to RM23.7bn (Feb: RM5.3bn), supported by higher volumes from unrated and rated corporate bond issuers as well as quasi-government issuers.

Loan applications rebounded sharply (+43.9% YoY; Feb: -15.4% YoY) following turnaround in household (+82.9% YoY; Feb: -5.8% YoY) and business applications (+4.9% YoY; Feb: -26.9% YoY). Household loan demand was mostly boosted by purchase of residential property (+103.4% YoY; Feb: +2.1% YoY) and passenger cars (+103.5% YoY; Feb: -17.7% YoY). This was consistent with strong passenger vehicle sales growth during the month (+197.7% YoY; Feb: +1.5% YoY) as reported by the Malaysian Automotive Association, owing partly to low base effect and rush of deliveries by companies having their fiscal year ending March 31. Business loan applications were most notable in ‘finance, insurance & business activities’, ‘mining & quarrying’ and ‘education, health & others’ sectors. Meanwhile, loan approvals also recovered strongly (+34.0% YoY; Feb: -18.4% YoY) in both household (+55.7% YoY; Feb: -1.9% YoY) and business sectors (+12.0% YoY; Feb: -37.2% YoY).

Bond inflows continued to rise, albeit at a softer pace (+RM6.2bn; Feb: +RM6.9bn). This could be supported by FTSE Russell’s decision to remove Malaysia from its watch list for possible exclusion from the WGBI. Meanwhile, the pace of equity outflows has eased (-RM0.1bn; Feb: -RM0.9bn).

HLIB’s VIEW

Loan indicators are expected to trend higher in 2Q21, partly due to low base effect and economic activity gaining traction. Nevertheless, the recent spike in Covid-19 infections could pose some downside risk to the overall recovery. We maintain our expectation for OPR to remain at 1.75% in 2021.

Source: Hong Leong Investment Bank Research - 3 May 2021