Monetary Indicators Moderated in May. Narrow Money Supply (M1) Eased to +15.1% YoY (Apr: +18.3% YoY) While Broad Money Supply (M3) Moderated to +3.8% YoY (Apr: +4.3% YoY). Meanwhile, Total Leading Loan Indicators Remained Strong Due to Low Base Effect. Foreign Buying of Local Bonds Slowed While Selling of Equities Continued.

DATA HIGHLIGHTS

Monetary indicators moderated in May. Narrow money supply (M1) eased to +15.1% YoY (Apr: +18.3% YoY) while broad money supply (M3) moderated to +3.8% YoY (Apr: +4.3% YoY). However, reserve money expanded by +11.3% YoY (Apr: +5.7% YoY) on higher currency in circulation. Meanwhile, total leading loan indicators remained strong owing to low base effect. Double-digit growth was recorded for loan applications (+63.6% YoY; Apr: +92.1% YoY), approvals (+80.0% YoY; Apr: +96.4% YoY) and disbursements (+51.3% YoY; Apr: +58.5% YoY).

Deposit growth picked up (+5.0% YoY; Apr: +4.6% YoY), backed by higher foreign (+6.5% YoY; Apr: +5.8% YoY) and business deposits (+4.6% YoY; Apr: +3.2% YoY), while household deposits moderated (+4.4% YoY; Apr: +5.2% YoY).

The household loan-deposit gap widened as growth remained positive for household loans on a MoM basis (+0.2%; Apr: +0.4%) but declined for household deposits (- 0.02%; Apr: +0.3%). On an annual basis, both loans (+6.1% YoY; Apr: +6.2% YoY) and deposits (+4.4% YoY; Apr: +5.2% YoY) moderated.

Total loans growth sustained at +3.9% YoY (Apr: +3.9% YoY). Household loans ticked lower (+6.1% YoY; Apr: +6.2% YoY) while business loans steadied (+0.4% YoY; Apr: +0.4% YoY) amid muted growth in loans for working capital purpose (+2.0% YoY; Apr: +1.9% YoY). Meanwhile, gross issuance of corporate bonds fell to RM7.5bn (Apr: RM11.2bn).

Loan applications moderated to +63.6% YoY (Apr: +92.1% YoY). Household applications growth remained strong (+179.8% YoY; Apr: +441.2% YoY) while business applications continued to fall (-5.6% YoY; Apr: -10.3% YoY), a possible sign of businesses adopting more prudent behaviour amid stricter lockdown measures. Household loan demand continued to be driven by purchase of passenger cars (+168.7% YoY; Apr: +1,527.3% YoY) and residential property (+215.8% YoY; Apr: +451.2% YoY) from a low base. Meanwhile, loan approvals slightly eased (+80.0% YoY; Apr: +96.4% YoY), supported by the household sector (+206.2% YoY; Apr: +433.1% YoY). Business loan approvals rebounded (+8.1% YoY; Apr: -8.6% YoY) due to base effect.

Momentum of bond inflows slowed in May (+RM2.0bn; Apr: +RM6.6bn) amid growth concerns following the announcement of full lockdown measures. Meanwhile, the sell-off of local equities eased (-RM0.2bn; Apr: -RM1.1bn).

HLIB’s VIEW

Spending activity is expected to be muted in the near term against the backdrop of uncertainty over the path of the pandemic and extension of FMCO until further notice. On this note, outstanding loan growth could weaken in the coming months alongside a downtrend in disbursements and repayments as businesses and consumers opt for the 6-month loan moratorium. With additional policy support in place to cushion the impact of FMCO, we expect BNM to leave the OPR unchanged in 2H21.

Source: Hong Leong Investment Bank Research - 1 Jul 2021