● M3 growth moderated to a 34-month low (3.4%; Sep: 3.9%)…

• MoM: 1.0% (Sep: 0.4%).
• Softer growth in narrow quasi-money (2.8%; Sep: 3.5%) while M1 growth pace unchanged (4.8%; Sep: 4.8%) and deposits placed with other banking institutions surged (36.7%; Sep: 19.6%).

● …due to slower growth in public and private spending

• Net claims on government slowed (12.3%; Sep: 12.7%): on lower credit extended to the government (17.0%; Sep: 19.3%).
• Claims on private sector (4.2%; Sep: 4.5%) eased after a short uptick in the preceding month, mainly due to growth moderation in securities (5.4%; Sep: 7.2%).
• Net external reserves (-2.2%; Sep: -3.6%): remained in a contraction for two straight months albeit lesser, steered by the banking system (-19.8%; Sep: -21.5%), reflecting, to a large extent less liquidation of foreign assets.

● Loan growth moderated (3.7%; Sep: 3.8%) to a record 16-year low

• By purpose: due to weak loan growth for working capital (1.3%; Sep: 1.6%) and other purposes (4.9%; Sep: 6.7%).
• By sector: slower credit growth in the manufacturing sector (3.9%; Sep: 5.7%) and construction sector (7.1%; Sep: 8.7%) while wholesale, retail trade, hotel & restaurant sector posted a 7-month high growth (7.5%; Sep: 5.8%).
• MoM: grew by 0.2% (Sep: 0.5%) amid lower average lending rate of commercial banks at 4.76% for two straight months.

● Deposit growth in the banking system extended its downtrend for eight straight months (3.5%; Sep: 4.2%)

• Weighed by substantially lower growth in demand deposits (4.8%; Sep: 6.1%) and fixed deposits (5.3%; Sep: 5.9%).

● Loan growth forecast maintained on the back of a growth slowdown in 2019 (4.2%; 2018: 7.7%)

• Growth outlook: we reiterate our view of a growth slowdown underpinned by uncertainties brought about by the US-China trade feud though there have been some positive developments recently in a bid to reach a first-phase trade deal.
• BNM OPR outlook: While the BNM has decided to maintain the policy rate at 3.00% for the rest of the year, we believe BNM still has ample room to lean towards a rate cut to lend support to domestic demand next year if the economy continues its downtrend in 2020.

Source: Kenanga Research - 2 Dec 2019