● M3 growth edged lower to a 5-month low in October (5.3%; Sep: 6.4%) on the back of sluggish credit demand

− MoM: first contraction in eight months (-0.1%; Sep: 0.4%).

− Moderation was led by the continued slowdown in narrow quasi-money (1.7%; Sep: 3.4%) growth, weighed primarily by a further contraction in fixed deposits (-1.9%; Sep: -0.5%).

− Offsetting the M3 slowdown was the strong M1 growth (19.2%; Sep: 18.2%) as demand deposits surged to 19.5% to reach a record level partly reflecting the bullish capital market.

● Softer growth in public spending and external reserves outweighed higher growth in the private sector

− Net external reserves (2.7%; Sep: 5.1%): moderated for the second consecutive month, steered by those of the banking system (12.4%; Sep: 24.2%).

− Net claims on government (33.7%; Sep: 41.4%): slowed for the third straight month due to a continuous drop in government deposits (-8.4%; Sep: -13.9%).

− Claims on the private sector (4.6%: Sep: 4.5%): edged up slightly on increased holdings of securities (7.8%; Sep: 6.1%) by the banking system.

● Loan growth moderated slightly to 4.3% (Sep: 4.4%)

− By purpose: attributable to a moderation in loan growth for the purchase of residential property (7.3%; Sep: 7.6%) and working capital (2.2%; Sep: 2.5%), which was partially offset by an increase in loans for transport vehicles (4.1%; Sep: 3.6%) and for other purposes (5.0%; Sep: 3.0%).

− By sector: a slight moderation in loan growth for the household sector (5.1%; Sep: 5.2%) and the manufacturing sector (4.0%; Sep: 4.9%) was enough to outweigh rising real estate (3.7%; Sep: 2.8%) and education, health and others (35.2%; Sep: 34.2%) sector loans.

− MoM: growth moderated to a six-month low (0.1%; Sep: 0.5%), despite a new record low of the weighted average lending rate of commercial banks (3.53%; Sep: 3.64%).

● Deposit growth eased to a four-month low (4.4%; Sep: 5.2%)

− Attributable to a persistent decline in fixed deposits which fell to a record low in October (-3.9%; Sep: -2.7%), probably due to a portfolio re-positioning amid the low interest rate environment.

● 2020 loan growth forecast revised up to 2.5%-3.5% from 1.0%-2.0% (2019: 3.9%) on stimulus measures

− Despite COVID-19’s unceasing spread and the re-imposition of Conditional Movement Control Order (CMCO) in most part of Malaysia, various government loan schemes coupled with attractive low interest rates will likely help to sustain the loan growth and prop up the economy.

− As Malaysia cope with the challenges posed by the worsening COVID-19 situation, we see a 50% probability that Bank Negara Malaysia (BNM) will cut rates by 25bps at the next Monetary Policy Committee meeting in January

Source: Kenanga Research - 1 Dec 2020