Monetary indicators softened in Aug. Narrow money supply (M1) growth moderated to +9.9% YoY (Jul: +10.8% YoY) while broad money supply (M3) slowed to +3.6% YoY (Jul: +3.8% YoY). Meanwhile, total leading loan indicators remained weak due to continued decline in loan applications and approvals. Net inflows of bonds and equities were recorded for the month.

DATA HIGHLIGHTS

Monetary indicators softened in Aug. Narrow money supply (M1) growth moderated to +9.9% YoY (Jul: +10.8% YoY) while broad money supply (M3) slowed to +3.6% YoY (Jul: +3.8% YoY). Reserve money growth picked up (+13.4% YoY; Jul: +11.9% YoY) mainly on higher currency in circulation. Meanwhile, total leading loan indicators remained weak due to lower loan applications (-6.1% YoY; Jul: -28.4% YoY) and approvals (-4.4% YoY; Jul: -16.2% YoY), while loan disbursements rose +20.0% YoY (Jul: +7.3% YoY).

Deposits growth moderated to +3.7% YoY (Jul: +4.1% YoY) following slower deposits by businesses (+2.6% YoY; Jul: +3.5% YoY), which offset higher household (+4.4% YoY; Jul: +4.0% YoY) and foreign deposits (+5.7% YoY; Jul: +5.6% YoY).

The household loan-deposit gap widened as monthly growth in household loans (+0.2%; Jul: +0.1%) outpaced household deposits (+0.1%; Jul: +0.3%). On an annual basis, household loans eased (+3.4% YoY; Jul: +4.2% YoY) while deposits gathered pace (+4.4% YoY; Jul: +4.0% YoY).

Total loans growth slowed to +2.5% YoY (Jul: +3.1% YoY) amid lower household (+3.4% YoY; Jul: +4.2% YoY) and business loans growth (+0.8% YoY; Jul: +1.3% YoY). While loan demand remained soft owing to continued mobility restrictions, the gradual easing of some restrictions towards the end of the month has led to higher loan disbursements, particularly for passenger cars and residential properties. Meanwhile, gross issuance of corporate bonds increased to RM8.4bn (Jul: RM6.4bn).

The fall in loan applications (-6.1% YoY; Jul: -28.4% YoY) was partly cushioned by higher business applications (+28.7% YoY; Jul: -13.1% YoY), while household applications declined further (-24.1% YoY; Jul: -37.7% YoY), stemming from most purposes; passenger cars, residential properties and personal use. For businesses, loan demand was supported by manufacturing, wholesale & retail trade and transport sectors. Meanwhile, loan approvals fell at a slower pace (-4.4% YoY; Jul: -16.2% YoY), also cushioned by business approvals (+41.7% YoY; Jul: +11.4% YoY). Household loan approvals continued its decline (-32.0% YoY; Jul: -34.4% YoY).

Foreigners returned to net buyers of local bonds in Aug (+RM6.4bn; Jul: -RM3.7bn). Net equity flows also turned positive (+RM1.1bn; Jul: -RM1.3bn), the first since Jul 2019. Higher portfolio inflows could be attributed to diminished political uncertainty following the appointment of a new prime minister during the month.

HLIB’s VIEW

According to BNM's 1H21 Financial Stability Review report, the share of household loan accounts under repayment assistance jumped to 25.4% in Jul (Jun: 12.8%). Notably, the latest repayment assistance announced in Jul was spread across borrowers from all income groups, suggesting that the spike was not entirely driven by borrowers in distress. While the assistance measure provides short-term support to borrowers and cushions the pandemic impact on the economy, a longer-term solution to restore financial health would require a more well-established economic recovery.

Source: Hong Leong Investment Bank Research - 1 Oct 2021