M3 growth increased to a 3-month high (3.5% YoY; Nov: 2.8%)…

• MoM: rose to a 14-month high (1.4%; Nov: 0.0%).
• Led by narrow quasi-money, followed by M1 and mainly reflected the improvement in the capital market.

as improved growth in public spending and private sector outweighed the lessened decline in net external reserves

• Net claims on government (6.0%; Nov: 2.7%): expanded after it slowed sharply in the preceding month, and due to a large drop in government deposits (-5.6%; Nov: 26.8%), drawdowns possibly to pay for infrastructure projects.
• Claims on private sector (4.2%; Nov: 4.0%): rose to a 4-month high on increased loans and securities.
• Net external reserves (-1.5%; Nov: -1.7%): smaller contraction attributable by lesser drop in the banking system reserves (- 11.5%; Nov: -16.6%), albeit a slowdown was observed in the central bank reserves (1.1%; Nov: 2.2%).

Loan growth expanded to a 4-month high (3.9%; Nov: 3.7%), slightly below our forecast (4.2%)

• By purpose: The performance was attributable to an increase in loans for construction (5.6%; Nov: 3.5%) and purchase of non-residential property (3.1%; Nov: 2.7%).
• By sector: improved credit growth in the manufacturing (8.9%; Nov: 5.0%) and primary agriculture (2.4%; Nov: -0.3%). Meanwhile loan for the construction sector continue to moderate to 2.2% (Nov: 3.4%).
• MoM: rose at the fastest pace in 18 months (0.7%) amid lower weighted average lending rate of commercial banks (4.70%; Oct: 4.73%).

Deposit growth inched up to 2.9% after it recorded a 33-month low in November (2.6%)

• Due mainly to increase in demand deposits (6.0%; Nov: 4.7%) and foreign currency deposits (6.7%; Nov: 5.4%).

The deceleration in loan growth is expected to continue in the 1H20 and may only recover in the 2H20 to settle at 4.0% (2019: 3.9%; 2018: 7.7%)

• We maintain our cautious growth outlook in light of our projection of a modest increase in loan growth for the year. Downside risk to persist in both domestic and external sectors with the impact from the coronavirus outbreak expected to mainly hit the services and the manufacturing sector, while the impact from the raised tariffs between the US and China to still weigh on global trade and growth.
• While the recent Bank Negara Malaysia’s overnight policy rate (OPR) cut may only help to contain growth from slowing further, it may not be enough to boost the growth momentum going forward. Given the soft growth momentum as evidenced by the recent slew of weak domestic economic indicators and heightened risk from the external side, we reckon that the BNM may embark on another OPR cut of 25 basis points to 2.50% in the near term

Source: Kenanga Research - 3 Feb 2020