● M3 growth expanded to a 3-year high in May (6.9%; Apr: 6.5%)

- MoM: growth sustained at 0.5% (Apr: 0.5%)

- Expansion was primarily led by an increase in fixed deposits (2.4%; Apr: 1.5%), whichoutpacedslower growth in savings deposits (9.6%; Apr: 16.9%).

● Driven by higher growth in government spending, whichoutweighed a moderation in private sector spending and a contraction innet external reserves

- Net claims on government (24.9%; Apr: 17.5%): expanded to a 15- month high on a deeper contraction of government deposits (- 14.8%; Apr: -4.8%).

- Claims on the private sector (4.4%; Apr: 4.5%): moderated due to a slightly smaller increase in private sector loans (5.0%; Apr: 5.1%).

- Net external reserves (-0.5%; Apr: 0.2%): contracted for the first time in 2-years, amid lower foreign reserves held by the banking system (3.9%; Apr: 9.6%).

● Loan growth remained at a 3-year high (5.0%; Apr: 5.0%)

- By purpose: continued to be led by loan growth for the purchase of residential property (6.8%; Apr: 6.8%), whilst an expansion in credit growth via credit cards (5.8%; Apr: 2.0%) was equally offset by a moderation in loans for working capital (6.7%; Apr: 7.1%).

- By sector: led by an expansion in credit growth for the household sector (5.0%; Apr: 4.9%), as well as greater credit growth for the transport, storage & communication sector (13.9%; Apr: 12.0%); nonetheless, this was offset bya moderation in loans growth for the manufacturing sector (9.5%; Apr: 10.8%).

- MoM: edged lower to 0.3% (Apr: 0.4%), on a higher weighted average lending rate of commercial banks (3.68%;Apr: 3.56%).

● Deposit growth edged lower to 6.1% YoY (Apr: 6.2%), but increased by 0.2% MoM (Apr: 0.1%)

- Moderation was primarily due to slower growth of saving deposits (9.6%; Apr: 16.9%), which outweighed a greater expansion in fixed deposits (2.3%; Apr: 1.7%) and demand deposits (7.3%; Apr: 6.5%).

● 2022 loan growth forecast maintained at 4.0% - 5.0% (2021: 4.5%)

- Loan growth will likely find sustained support from Malaysia’s ongoing economic recovery, particularly aided by growing domestic demand. However, expectations of faster BNM monetary policy tightening, in the face of burgeoning inflationary pressures, may tilt 2022 loan growth away from the higher end of our forecast range.

- We expect BNM raise rates by 25 bps at each of its three remaining monetary policy meetings this year, which would bring the year-end rate to 2.75%. This is on the back of strong domestic demand post COVID restrictions, and as the central bank likely follows through with the path set by its early rate-hike in May to pre-emptively address inflationary pressures, which is expected to accelerate in 2H22 amid the removal of some government price controls and ongoing global supply disruptions.

Source: Kenanga Research - 1 Jul 2022