Monetary indicators were mixed in Sep. Narrow money supply (M1) growth moderated to +9.7% YoY (Aug: +9.9% YoY) while broad money supply (M3) expanded by +4.7% YoY (Aug: +3.6% YoY). Meanwhile, total leading loan indicators remained weak due to steeper decline in loan applications and approvals. Foreigners remained net buyers of local bonds and equities.

DATA HIGHLIGHTS

Monetary indicators were mixed in Sep. Narrow money supply (M1) growth moderated to +9.7% YoY (Aug: +9.9% YoY) while broad money supply (M3) expanded by +4.7% YoY (Aug: +3.6% YoY). Reserve money growth picked up (+14.4% YoY; Aug: +13.4% YoY), driven by higher currency in circulation. Meanwhile, total leading loan indicators remained weak due to steeper decline in loan applications (-7.0% YoY; Aug: -6.1% YoY) and approvals (-5.4% YoY; Aug: - 4.4% YoY), while loan disbursements rose +30.2% YoY (Aug: +20.0% YoY).

Deposits growth picked up to +4.7% YoY (Aug: +3.7% YoY) following higher deposits by businesses (+6.0% YoY; Aug: +2.6% YoY) and households (+4.5% YoY; Aug: +4.4% YoY), offsetting slower growth in foreign deposits (+3.2% YoY; Aug: +5.9% YoY).

The household loan-deposit gap widened as monthly growth in household loans (+0.6%; Aug: +0.2%) outpaced household deposits (+0.5%; Aug: +0.1%). On an annual basis, household loans eased (+3.2% YoY; Aug: +3.4% YoY) while deposits ticked higher (+4.5% YoY; Aug: +4.4% YoY).

Total loans growth increased to +2.9% YoY (Aug: +2.5% YoY), driven by stronger business loans growth (+2.3% YoY; Aug: +0.8% YoY) on the back of higher working capital loans growth (+4.6% YoY; Aug: +2.2% YoY), while household loans growth moderated (+3.2% YoY; Aug: +3.4% YoY). Despite this, loan disbursements increased (+30.2% YoY; Aug: +20.0% YoY) owing to more disbursements for residential property, credit cards and working capital. Meanwhile, gross issuance of corporate bonds increased to RM10.7bn (Aug: RM8.4bn).

Loan applications recorded a steeper decline (-7.0% YoY; Aug: -6.1% YoY) following continued decline in household applications (-10.9% YoY; Aug: -24.1% YoY) and deceleration in business applications (+0.5% YoY; Aug: +28.7% YoY). Household loan demand fell on lower applications for passenger cars, residential properties and personal use. For businesses, higher applications in the wholesale & retail trade sector was partly offset by the decline in construction and real estate sectors. Meanwhile, loan approvals also continued to decline (-5.4% YoY; Aug: -4.4% YoY) amid lower approvals in the household sector (-19.2% YoY; Aug: -32.0% YoY) and moderation in business sector (+15.1% YoY; Aug: +41.7% YoY).

Foreigners remained net buyers of local bonds and equities for the second consecutive month, with more modest inflows of +RM0.3bn (Aug: +RM6.4bn) and +RM0.6bn (Aug: +RM1.1bn) respectively. Bond flows could have moderated on increasing signals from major central banks on rising inflationary pressure.

HLIB’s VIEW

In the near term, loan applications growth could see an improvement as economic activity picks up following the progress of more states to Phase 4 of the National Recovery Plan. We maintain our expectation for BNM to keep the OPR unchanged at 1.75% in the 3rd Nov MPC meeting.

Source: Hong Leong Investment Bank Research - 1 Nov 2021