● M3 growth softened in April (4.3%; Mar: 6.1%)

- MoM: first contraction in six months (-0.5%; Mar: 1.4%), its sharpest monthly drop in nearly five years.

- Moderation was attributable to softer growth of narrow quasi money (0.1%; Mar: 2.3%) and M1 growth edging lower (18.3%; Mar:19.0%)

● Softer growth across public spending, private sector spending and net external reserves

- Net claims on government (3.8%; Mar: 17.8%): moderated to a 17- month low, largely due to a higher base effect and a slowdown in credits extended to the government (7.4%: Mar: 15.7%).

- Claims on the private sector (3.6%; Mar: 3.9%): edged lower on a decrease in holdings of securities (2.8%: Mar: 4.7%) by the banking system.

- Net external reserves (1.8%; Mar: 6.0%): softened to 3-month low, predominantly due to a decrease of foreign reserves in the banking system (-6.6%; Mar: 24.7%). 

● Loan growth remained at a 6-month high (3.9%; Mar: 3.9%)

- By purpose: driven by a smaller decrease in loans for credit cards (-2.1%; Mar: -9.8%), which was offset by a moderation in loans for working capital (1.9%; Mar: 2.7%).

- By sector: a continued increase in credit growth for the household sector (6.2%; Mar: 5.7%), was partially offset by slowing credit growth in the wholesale, retail trade, hotels & restaurant sector (5.9%; Mar: 7.6%).

- MoM: moderated to a 5-month low (0.0%; Mar: 0.7%), amid a slightly lower weighted average lending rate of commercial banks (3.45%; Mar: 3.47%).

● Deposit growth eased to a 4-month low YoY (4.6%; Mar: 5.9%), and fell to a 5-year low MoM (-0.8%; Mar: 1.5%)

- A slowdown in savings deposits (19.3%; Mar: 25.0%), foreign currency deposits (10.3; Mar: 15.7%) and other deposits accepted (1.4%; Mar: 7.4%), outweighed a rebound in repurchase agreements (5.4%; Mar: -6.1%).

● 2021 loan growth forecast range retained at 3.5% - 4.5% (2020: 3.4%; 2019: 3.9%), despite higher COVID-19 cases

- In spite of elevated domestic COVID-19 cases and the reinstatement of a total nationwide Movement Control Order (MCO), we expect loan growth to still be supported in 2H21 on the release of pent-up demand. The full-scale MCO will likely weigh on economic activities in the near-term, but we reckon this will be partly offset by the release of additional fiscal stimulus (Pemerkasa+), thereby minimising its impact on recovery outlook and loan growth.

- We maintain that Bank Negara Malaysia will likely keep the policy rate at 1.75% for the rest of the year, although the announcement of a full-scale MCO has marginally raised the probability of a rate cut. This is in line with the sustained prospect of an economic recovery, and an expectation that inflation will rise amid higher global commodity prices.

Source: Kenanga Research - 1 Jun 2021