Monetary indicators softened in Jun. Narrow money supply (M1) moderated to +12.2% YoY (May: +15.1% YoY) while broad money supply (M3) eased to +3.4% YoY (May: +3.8% YoY). Meanwhile, total leading loan indicators weakened on the back of lower loan applications and approvals. Non-resident bond inflows decelerated while outflow of equities continued.

DATA HIGHLIGHTS

Monetary indicators softened in Jun. Narrow money supply (M1) moderated to +12.2% YoY (May: +15.1% YoY) while broad money supply (M3) eased to +3.4% YoY (May: +3.8% YoY). However, reserve money expanded by +13.0% YoY (May: +11.3% YoY). Meanwhile, total leading loan indicators weakened on the back of lower loan applications (-1.0% YoY; May: +63.6% YoY) and approvals (-0.1% YoY; May: +80.0% YoY). Loan disbursements slowed sharply (+9.3% YoY; May: +51.3% YoY).

Deposits growth moderated to +3.9% YoY (May: +5.0% YoY) following lower growth rates across foreigners (+4.6% YoY; May: +6.5% YoY), households (+4.3% YoY; May: +4.4% YoY) and businesses (+3.3% YoY; May: +4.6% YoY).

The household loan-deposit gap narrowed as household loans declined on a MoM basis (-0.2%; May: +0.2%) while household deposits increased by +0.5% (May: - 0.02%). On an annual basis, both loans (+5.2% YoY; May: +6.1% YoY) and deposits (+4.3% YoY; May: +4.4% YoY) moderated.

Total loans growth moderated to +3.4% YoY (May: +3.9% YoY) as household loans eased to +5.2% YoY (May: +6.1% YoY) following lower disbursements for purchase of passenger cars (-35.0% YoY; May: +288.2% YoY), residential property (-33.4% YoY; May: +91.4% YoY) and credit cards (-12.2% YoY; May: +25.5% YoY). Consumer spending could have been curtailed due to the full lockdown. Business loans recorded an uptick (+0.9% YoY; May: +0.4% YoY) amid stronger working capital loan growth (+1.6% YoY; May: +0.4% YoY). Meanwhile, gross issuance of corporate bonds declined slightly to RM7.3bn (May: RM7.5bn).

Loan applications declined by -1.0% YoY (May: +63.6% YoY) as lower household applications growth (-2.7% YoY; May: +179.8% YoY), attributed to the fall in applications for purchase of passenger cars (-53.1% YoY; May: +168.7% YoY), offset the rebound in business applications (+1.5% YoY; May: -5.6% YoY), which was mainly supported by construction, transport, storage & communication and manufacturing sectors. Meanwhile, loan approvals fell by -0.1% YoY (May: +80.0% YoY) amid lower approvals in the business sector (-16.8% YoY; May: +8.1% YoY) and slowdown in the household sector (+19.6% YoY; May: +206.2% YoY).

Non-resident bond inflows decelerated (+RM0.4bn; May: +RM2.0bn) as foreign demand weakened amid steeper US treasury yields and domestic growth concerns due to the full lockdown. The sell-off of local equities also continued (-RM1.2bn; May: - RM0.2bn).

HLIB’s VIEW

The downturn in loan applications suggests a weakening of consumption activity due to the prolonged lockdown measures. Government’s assistance including the opt-in 6 month loan moratorium programme is expected to partially cushion the drop. Going forward, the strong ramp-up in vaccination rates is expected to offer some respite to the economy. We expect BNM to leave the OPR unchanged for the rest of 2021.

Source: Hong Leong Investment Bank Research - 2 Aug 2021