Monetary indicators moderated in Mar following moderate expansion of narrow money supply (M1) (+7.8% YoY; Feb: +8.7% YoY) and broad money supply (M3) (+5.5% YoY; Feb: +6.8% YoY). Meanwhile, total leading loan indicators softened due to high base effect. Foreigners remained net buyers of local equities but turned net sellers of bonds during the month.

DATA HIGHLIGHTS

Monetary indicators moderated in Mar following moderate expansion of narrow money supply (M1) (+7.8% YoY; Feb: +8.7% YoY) and broad money supply (M3) (+5.5% YoY; Feb: +6.8% YoY). Reserve money growth also eased to +8.5% YoY (Feb: +8.7% YoY). Meanwhile, total leading loan indicators entailing loan applications (+4.6% YoY; Feb: +13.0% YoY), approvals (+12.5% YoY; Feb: +18.0% YoY) and disbursements (+11.8% YoY; Feb: +12.3% YoY) also softened due to high base effect.

Deposits growth moderated to +5.2% YoY (Feb: +6.5% YoY) following softer growth across all deposit categories; business (+12.5% YoY; Feb: +13.2% YoY), household (+3.5% YoY; Feb: +3.8% YoY) and foreign (+0.9% YoY; Feb: +4.3% YoY).

The household loan-deposit gap widened as household loans growth on a MoM basis (+0.5%; Feb: +0.2%) outpaced household deposits growth (+0.4%; Feb: - 0.2%). On a YoY basis, household loans growth picked up (+4.9% YoY; Feb: +4.7% YoY) while household deposits eased (+3.5% YoY; Feb: +3.8% YoY).

Total outstanding loans growth edged lower (+4.6% YoY; Feb: +4.7% YoY) owing to slower business loans growth (+4.5% YoY; Feb: +5.5% YoY) amid lower growth in working capital financing. This offset higher household loans growth (+4.9% YoY; Feb: +4.7% YoY), reflected by growth across all purposes (i.e., credit card and purchase of passenger cars), as loan disbursements for household loans also picked up (+10.2% YoY; Feb: +3.1% YoY). Meanwhile, gross issuance of corporate bonds increased to RM12.4bn (Feb: RM3.1bn), mainly stemming from higher issuance of rated corporate bonds and quasi-government bonds.

Loan applications slowed to +4.6% YoY (Feb: +13.0% YoY) following the dip in household applications (-0.6% YoY; Feb: +13.8% YoY). Applications for most household purposes slowed, while personal use and residential properties declined. Business loan applications continued to rise (+13.7% YoY; Feb: +11.9% YoY), driven by finance, insurance & business activities and transport, storage & communication subsectors. Meanwhile, loan approvals also eased (+12.5% YoY; Feb: +18.0% YoY) as slower growth in the business sector (+14.4% YoY; Feb: +34.8% YoY) offset the acceleration in household sector (+11.1% YoY; Feb: +8.4% YoY).

Foreigners turned net sellers of local bonds in Mar (-RM3.7bn; Feb: +RM3.0bn) following the more aggressive narrative of monetary policy tightening by the Federal Reserve. However, foreigners’ appetite for Malaysian equities sustained, reflected by continuous net equity inflows (+RM3.2bn; Feb: +RM2.8bn).

HLIB’s VIEW

The Federal Reserve is anticipated to accelerate its monetary policy tightening plans, potentially resulting in further narrowing of yield spreads against developed market bonds. Nevertheless, as Malaysia’s economic recovery is expected to be more measured compared to the US, we continue to expect BNM to increase OPR by 25bps in 4Q22.

Source: Hong Leong Investment Bank Research - 5 May 2022