● M3 growth remained unchanged at 6.4% in September (Aug: 6.4%) on the back of low-interest rates and ongoing fiscal stimulus

- MoM: marginally expanded to 0.4% (Aug: 0.1%), marking seven consecutive months of expansion

- Growth was attributed to the continued expansion of M1 (18.2%; Aug: 17.8%), backed by further expansion in demand deposits (18.5%; Aug: 18.08%).

● Growth in the private sector outweighed a softer growth in public spending and external reserves

- Claims on the private sector (4.5%; Aug: 4.5%): sustained at the same pace in September.

- Net external reserves (5.1%; Aug: 6.0%): growth moderated on lower net foreign reserves by the BNM (1.2%; Aug: 4.3%)

- Net claims on government (41.4%; Aug: 48.2%): moderated for the second straight month due to a drop in government deposits (- 13.9%; Aug: -26.3%), albeit remained relatively high in tandem with the ongoing fiscal expansion.

● Loan growth unchanged at 4.4% (Aug: 4.4%)

- By purpose: attributable to a slowdown in loan growth for

construction (5.6%; Aug: 7.8%) and other purposes (3.0%; Aug: 6.6%), but partially offset by vehicle loans (3.6%; Aug: 1.5%), which mark an almost a seven-year high and housing loans (7.6%, Aug: 7.5%), an 18-month high.

- By sector: a sharp moderation of loan growth in the electricity, gas & water supply sector (1.7%; Aug: 18.9%) counterbalanced an increase in loans for the household sector (5.2%; Aug: 4.8%).

- MoM: growth was unchanged at 0.5% (Aug: 0.5%), in line with a sustained weighted average lending rate of commercial banks at 3.64% (Aug: 3.64%).

● Deposit growth rose to 5.2% (Aug: 4.5%), a 16-month high

- Due to a surge in repurchase agreement (42.5%; Aug: 18.8%) and saving deposits (23.8%; Aug: 21.4%) as well as a rebound in other deposits accepted (3.0%; Aug: -1.9%), which offset a worsening decline in fixed deposits (-2.7%; Aug: -2.1%).

● 2020 loan growth forecast maintained at 1.0%-2.0% (2019: 3.9%) amid a resurgence in COVID-19 cases

- The ongoing spike of local COVID-19 infections, which has led to renewed lockdown measures in some areas of the country, will likely impede the ongoing economic recovery. In turn, we expect an uneven recovery in confidence among households and businesses, which will limit loan growth.

- We expect the BNM to maintain the overnight policy rate (OPR) at 1.75%. However, considering the reimplementation of lockdown restrictions and the rise of COVID-19 cases, we believe there is still room to cut the OPR should the need arise

Source: Kenanga Research - 2 Nov 2020