● M3 growth inched up slightly to 4.4% YoY in January (Dec 22: 4.3%)

- MoM: expanded to a 4-month high of 0.4% (Dec 22: 0.3%).

- Growth expanded due to expansion in foreign currency (24.0%; Dec 22: 21.8%) and fixed (5.5%; Dec 22: 5.2%) deposits.

● The growth expansion was also attributed to higher net external reserves and public spending

- Net external reserves (1.7%; Dec 22: -2.2%): rebounded to a tenmonth high due to higher foreign currency reserves held by BNM (4.8%; Dec 22: 3.6%) and a lower decline in foreign currency reserves held by banking system (-11.7%; Dec 22: -25.0%).

- Net claims on government (19.9%; Dec 22: 14.8%): growth jumped to a seven-month high amid higher claims on government (15.5%; Dec 22: 13.1%).

● Loan growth moderated to a 10-month low in January (4.9% YoY; Dec 22: 5.7%)

- By purpose: the moderation in growth was attributable to a sharp slowdown in working capital (3.8%; Dec 22: 6.1%) and the purchase of securities (0.4%; Dec 22: 3.2%). Nonetheless, loan growth remained underpinned by loans for the purchase of residential property (6.8%; Dec 22: 6.9%), with a share of the overall loan remaining the largest at 36.4%.

- By sector: weaker credit growth due to a decline in manufacturing (-0.1%; Dec 22: 2.6%) and slowing household (5.6%; Dec 22: 5.9%) sectors. However, the household sector remained the biggest, with a 59.1% share of the overall loan.

- MoM: fell (-0.2%; Dec 22: 0.7%), lowest since January 2012.

● Deposit growth expanded to a three-month high in January (7.0% YoY; Dec 22: 5.9%), on a lower base effect as MoM growth slowed to 0.3% (Dec 22: 1.0%)

- Growth was contributed by an increase in local & foreign currency deposits (112.3%; Dec: 68.0%) as well as a sharp rebound in negotiable instruments of deposit (40.3%; Dec 22: -4.9%).

● 2023 loan growth forecast retained, to moderate between 4.5% - 5.0% (2022: 5.7%)

- We retain our outlook that loan growth would moderate further in 2023 on the expectation of normalisation in economic activities and the impact of tighter financial conditions from the previous cumulative rate hikes by BNM. This also considers the diminishing effect of a lower base and the prospect of a global economic slowdown that could weigh on demand for loans.

- On the monetary policy front, we maintain our outlook that BNM will retain OPR at 2.75% for the rest of the year, barring an exceptional external shock or any risk to domestic inflation and GDP growth outlook. Besides, we believe BNM has reached the end of the rate hike cycle and would retain an accommodative stance to support growth.

Source: Kenanga Research - 1 Mar 2023