Monetary indicators were mixed in Jul. Narrow money supply (M1) moderated to +10.8% YoY (Jun: +12.2% YoY) while broad money supply (M3) expanded by +3.8% YoY (Jun: +3.4% YoY). Meanwhile, total leading loan indicators weakened on the back of lower loan applications and approvals. Non-resident bond and equity outflows were recorded for the month.

DATA HIGHLIGHTS

Monetary indicators were mixed in Jul. Narrow money supply (M1) moderated to +10.8% YoY (Jun: +12.2% YoY) while broad money supply (M3) expanded by +3.8% YoY (Jun: +3.4% YoY). Reserve money growth softened to +11.9% YoY (Jun: +13.0% YoY). Meanwhile, total leading loan indicators weakened on the back of lower loan applications (-28.4% YoY; Jun: -1.0% YoY) and approvals (-16.2% YoY; Jun: -0.1% YoY). Loan disbursements moderated further (+7.3% YoY; Jun: +9.3% YoY).

Deposits grew +4.1% YoY (Jun: +3.9% YoY) following expansion in foreign (+5.6% YoY; Jun: +4.6% YoY) and business deposits (+3.5% YoY; Jun: +3.3% YoY), offsetting the moderation in household deposits (+4.0% YoY; Jun: +4.3% YoY).

The household loan-deposit gap narrowed slightly as household deposits growth (+0.3% MoM; Jun: +0.5% MoM) continued to outpace household loans (+0.1% MoM; Jun: -0.2% MoM). On an annual basis, both household deposits (+4.0% YoY; Jun: +4.3% YoY) and loans (+4.2% YoY; Jun: +5.2% YoY) moderated.

Total loans growth moderated to +3.1% YoY (Jun: +3.4% YoY). Softer household loans growth was attributed to lower disbursements for purchase of passenger cars (- 72.2% YoY; Jun: -35.0% YoY), residential property (-51.5% YoY; Jun: -33.4% YoY) and credit cards (-14.7% YoY; Jun: -12.2% YoY), as mobility restrictions continued to impact consumer spending. Business loans increased (+1.3% YoY; Jun: +0.9% YoY) amid higher working capital loan growth (+2.5% YoY; Jun: +1.6% YoY). Meanwhile, gross issuance of corporate bonds fell to RM6.4bn (Jun: RM7.3bn).

The decline in loan applications deepened (-28.4% YoY; Jun: -1.0% YoY) amid lower household (-37.7% YoY; Jun: -2.7% YoY) and business applications (-13.1% YoY; Jun: +1.5% YoY). Household loan demand was low for most purposes; passenger cars (-74.5% YoY; Jun: -53.1% YoY), residential properties (-34.3% YoY; Jun: +6.6% YoY), personal use (-26.9% YoY; Jun: +10.5% YoY) and credit cards (-11.9% YoY; Jun: +12.4% YoY). For businesses, while most sectors saw lower loan demand, the drop was cushioned by manufacturing, real estate and transport, storage & communication sectors. Meanwhile, loan approvals fell -16.2% YoY (Jun: -0.1% YoY) as the decline in household approvals (-34.4% YoY; Jun: +19.6% YoY) offset higher business approvals (+11.4% YoY; Jun: -16.8% YoY).

Bond outflow was recorded in Jul (-RM3.7bn; Jun: +RM0.4bn), ending its 14-month streak of inflows, while equity outflows continued (-RM1.3bn; Jun: -RM1.2bn).

Increasing anticipation of bond tapering by the Federal Reserve and domestic growth concerns may have shifted foreign investors’ appetite away from local bonds and equities.

HLIB’s VIEW

The recent announcement of economic freedoms for fully vaccinated individuals and green light for all industries to resume operations depending on workforce vaccination progress could provide some upside risk to the growth outlook. On this note, we expect BNM to leave the OPR unchanged for the rest of the year.

Source: Hong Leong Investment Bank Research - 1 Sept 2021