OVERVIEW

● November broad money (M3) growth edged up to 7.4% YoY (Oct: 7.1%), the highest since April 2015. This was underpinned by larger growth of net claims on government (37.6%; Oct: 24.5%), claims on private sector (7.1%; Oct: 6.8%) and net other influences (4.5%, Oct: 3.8%). Collectively, these have more than outweighed faster contraction of net foreign assets (-2.7%, Oct: - 0.5%), reflecting rampant capital outflows. In terms of percentage point (ppt) contribution to growth, claims on the private sector remained the key contributor (7.0 ppt), followed by net claims on government (2.9 ppt), while net other influences (-1.7 ppt) and net external reserves (-0.8 ppt) remained a drag to M3 growth. On a MoM basis, M3 growth eased to 0.6% (Oct: 1.4%).

● Tracking a similar direction, narrow money (M1) growth increased to 3.3% YoY (Oct: 3.1%), reversing its downward trend since the beginning of the year, as softer growth of currency in circulation (2.3%; Oct: 3.1%) was offset by expansion in demand deposits (3.6%; Oct: 3.2%). This was in line with expectation of stronger domestic spending, particularly driven by festive purchases, despite faltering capital market performance during the month. On a MoM basis, M1 growth expanded by 0.6% (Oct: 0.3%).

● Loan growth retained an uptrend in November, marking a 31-month high of 6.2% YoY (Oct: 6.0%), mainly driven by higher loans extended for the purchase of fixed assets excluding land and building (9.8%; Oct: 4.3%) and working capital (6.3%; Oct: 5.5%), as well as a more modest contraction in loans for construction (-13.6%; Oct -25.3%), which altogether have offset moderation in loans for the purchase of residential property (7.7%; Oct: 7.9%). On a sectoral basis, mining and quarrying (10.0%; Oct: 0.7%), as well as wholesale, retail trade, hotel and restaurant (7.8%; Oct: 5.5%) led the improvement observed in November. Of note, the household sector recorded its fourth month of moderation (5.7%; Oct: 5.9%), potentially reflecting cautious sentiments by both the loan provider and households given prospects of slowing economic growth. On a MoM basis, loan growth rose marginally to 0.4% (Oct: 0.3%), amid unchanged weighted average lending rate among commercial banks of 4.98%. Meanwhile, deposit growth rose to a 41-month high of 6.5% YoY (Oct: 5.9%), propelled by increase in repurchase agreements (46.3%; Oct: 39.5%) and foreign currency deposits (6.0%; Oct: 3.1%) and to a lesser extent a smaller contraction in negotiable instrument of deposits (-16.4%; Oct: -20.7%).

● Banks’ liquidity remained healthy despite slight easing in the liquidity coverage ratio to 141.4% (Oct: 147.0%), due to lower stock of high quality liquid assets and higher net cash outflow recorded in the banking system. Overall, loan growth has moderated to 5.1% YTD (2017: 5.4%), well within our whole year estimate of 5.0% (2017: 5.3%), while deposit growth expanded by 5.4% YTD (2017: 4.0%). Loan growth is forecasted to ease further to 4.2% in 2019, given the subdued inflationary trend and prospects of moderating global growth. In ensuring capital market stability, ample liquidity and to remain supportive of growth, we believe BNM will hold the OPR steady at 3.25% this year.

Source: Kenanga Research - 2 Jan 2019