OVERVIEW

● Broad money supply (M3) grew by 6.1% YoY in September slower than August’s 6.4%. M3 added RM10.7b (+0.6% MoM) thanks to higher net claims on government which jumped 24.2% YoY (August: +10.2%), contributing 1.9 percentage points (ppts) to M3 growth. Meanwhile, net claims on the private sector grew by 6.8% YoY (Aug: +7.4%) contributing 6.8 ppts to M3 YoY growth. As expected, net external reserves fell by 0.4% YoY (Aug: -0.3%) on capital outflows.

● Narrow money (M1) growth moderated to 4.1% YoY (Aug: +4.4%) due to the lower demand deposits which grew by 4.4% YoY (Aug: +4.9%), reflecting a slower business environment and a stock market selldown. Meanwhile, currency in circulation expanded by 3.3% YoY (Aug: +2.8%) and contribute 0.2 ppts to overall broad money supply growth in September.

● Loan growth continued its uptrend in September. It grew by 5.7% YoY (Aug: +5.4%), a 13-month high due to an increase in credit for finance, insurance & business activities sector which rose sharply by 5.4% YoY (Aug: +2.5%), contributing 0.4 ppts to overall growth (Aug: +0.2 ppts). The manufacturing sector also saw an expansion in credit growth, up by 6.3% YoY (Aug: +5.0%), adding 0.4 ppts to the overall loan growth. By loan purpose, purchase for working capital has increased by 4.6% in September (Aug: +3.2%), contributing 1.1 ppts to overall loan growth (Aug: +0.8 ppts). Loan for purchase of residential property grew by 8.0% YoY (August: +8.2%), contributing 2.6 ppts to overall loan growth in September. Additionally, purchase for construction and other purpose maintained a double-digit growth of 11.1% and 14.6% YoY respectively in September. Meanwhile, non-performing loans (NPL) in the banking system has dropped to 1.5% from 1.6% previously while loan approval rate rose sharply to 50.3% in September from 43.5% in August, a 9-month high.

● Deposit growth rose to 6.3% YoY from August’s +5.7% on 1.4% MoM increase. The month’s growth was attributable to the increased in foreign currency deposits which rebounded sharply by 10.5% YoY (August: -6.9%). Similarly, fixed deposits grew by 7.7% YoY (Aug: +8.4%), contributing 3.8 ppts to overall deposit growth (August: 4.1 ppts). Total deposits in Islamic bank maintained a double-digit growth since July 2017, albeit moderating at 11.4% YoY in September (August: +13.4%) while commercial banks deposits growth expanded to 4.5% YoY (August: +3.0%).

● The banking system Liquidity Coverage Ratio (LCR) has dropped to 139.5 in September (August: 143.6) due to the declined in the banking system’s stock of high-quality liquid assets which fall by 0.8% MoM (August: +2.3%).

● On year-to-date, loan growth has moderate to 4.9% compared to the preceding year’s 5.6%, while deposit growth expanded by 5.2% versus 3.5% in the same period last year. We expect loan growth to grow around 5.0% for the year amid a slowdown in the domestic economy while inflation remains low. Subsequently, we expect Bank Negara Malaysia (BNM) to keep the OPR at 3.25% for the rest of the year to support the slowing domestic economy.

Source: Kenanga Research - 1 Nov 2018