● M3 growth edged higher in December (6.4%; Nov: 6.2%)

- MoM: moderated to a 2-month low (0.4%; Nov: 1.5%)

- Higher growth was mainly attributable to a sustained expansion in narrow quasi-money (4.9%; Nov: 4.5%), on rising fixed deposits (0.9%; Nov: -0.1%) and savings deposits (14.6%; Nov: 13.7%).

● Driven by a continued expansion of net external reserves, which outweighed softer growth in private sector spending and government spending

- Net external reserves (9.7%; Nov: 7.7%): attributable to soaring foreign reserves in the banking system (17.0%; Nov: 9.7%) and an increase in foreign reserves by BNM (8.0%; Nov: 7.2%).

- Claims on the private sector (3.5%; Nov: 3.9%): moderation was largely attributable to a decline in holdings of securities by the banking system (-2.8%; Nov: 1.5%).

- Net claims on government (11.9%; Nov: 12.9%): moderated due to a rise in government deposits (13.1%; Nov: 8.4%).

● Loan growth rose to its highest level in 17 months (4.5%; Nov: 4.3%)

- By purpose: driven by a further expansion in loans for residential property (6.8%; Nov: 6.5%) and the purchase of transport vehicles (1.1%; Nov: 0.3%), which outweighed a slowdown in loans for the purchase of securities (3.9%; Nov: 5.7%).

- By sector: largely driven by a rebound in credit growth for the education, health & other sectors (5.8%; Nov: -1.8%), as well as sustained credit growth for the household sector (4.3%; Nov: 4.1%), which outpaced a moderation in loans for the manufacturing sector (9.2%; Nov: 11.1%).

- MoM: moderated to 0.5% (Nov: 0.9%)amidahigherweighted average lending rate of commercial banks (3.45%;Nov: 3.44%)

● Deposit growth edged lower to 6.3 (Nov: 6.4%), as it expanded 1.0% MoM (Nov: 1.7%)

- Moderation was attributable to softer growth in demand deposits (9.0%; Nov: 9.7%) and repurchase agreements (29.4%; Nov: 53.0%), despite a further increase in fixed deposits (1.1%; Nov: 0.4%).

● 2022 loan growth is projected to register between 4.0% - 5.0% (2021: 4.5%; 2020: 3.4%)

- A projected expansion in GDP growth (5.5%-6.0%) and an improving domestic COVID-19 situation should continue to expand household and business confidence, which is expected to sustain loan growth momentum in 2022. Additionally, loans may be lifted by an extended period of low interest rates as BNM takes a cautious approach towards monetary policy direction. Nonetheless, downside risks remain amid the global spread of the Omicron variant and its exacerbation of supply chain disruptions.

- We continue to expect BNM to keep the policy rate unchanged at 1.75% until at least 3Q22, in order to ensure the country’s economic recovery and as inflation remains modest for the time being.

Source: Kenanga Research - 3 Feb 2022