• Broad money (M3) expanded to a seven-month high in October (3.7% YoY; Sep: 2.9%)
  
  − This is mainly due to an increase in demand deposits (3.6%; Sep: 2.0%) and foreign currency deposits (8.3%; Sep: 7.7%). However, the expansion was partly hindered by sustained weakness in savings deposit (-3.9%; Sep: -5.5%) and other deposits (-2.7%; Sep: -5.5%).
  
  − MoM: expanded (0.6%; Aug: 0.2%), highest since August 2022.

• M3 growth was primarily driven by an expansion in claims on the government sector
  
  − Net claims on the government (12.3%; Sep: 11.9%): reached an eight-month high, contributing to 1.7 ppts (Sep: 1.6 ppts).
  
  − Claims on the private sector (4.8%; Sep: 5.2%): moderated to a fourmonth low due to slower loans (4.4%; Sep: 4.8%) and securities (7.4%; Sep: 8.1%). Its contribution to overall M3 growth decreased to 4.6 ppts (Sep: 5.0 ppts).
  
  − Foreign assets (0.7%; Sep: 2.3%): sharply slowed to an eight-month low on sharper contraction in banking system (-14.6%; Sep: -10.6%).

• Loan growth moderated to a two-year low (4.0% YoY; Sep: 4.4%)
  
  − By purpose: supported by expansion in residential property (7.4%; Sep: 7.2%) at a 14-month high and higher loan for transport vehicles (9.4%; Sep: 9.0%). Combined, its contribution to overall loan growth expanded to 3.6 ppts (Sep: 3.5 ppts). However, overall loan growth was partially weighed down by weaker growth in working capital (0.3%; Sep: 1.2%) and a contraction in other purpose (-1.6%; Sep: 0.8%). Credit card growth also slowed (12.1%; Sep: 13.2%), reducing its contribution to 0.2 ppts (Sep: 0.3 ppts).
  
  − By sector: household sector (5.8%; Sep: 5.6%) continued to support the overall loan growth, contributing 3.4 ppts (Sep: 3.3 ppts). Growth was also supported by an expansion in education, health & others (8.2%; Sep: 5.1%) and manufacturing (2.1%; Sep: 0.8%) sectors, contributing a combined 0.3 ppts (Sep: 0.2 ppts). Overall, the growth was partially capped by ongoing weakness in electricity, gas, steam & aircond supply (-29.4%; Sep: -11.6%) and a contraction recorded in transport & storage (-6.4%; Sep: 3.3%).
  
  − MoM: Growth moderated to a three-month low (0.3%; Sep: 0.8%).

• Deposit growth remained unchanged (4.3% YoY; Sep: 4.3%) due to a high base effect recorded last year (Oct 2023: 8.3%), as MoM growth continue to expand (0.4%; Sep: 1.2%) albeit at a slower pace
  
  − Growth was largely supported by an expansion in demand deposits (2.0%; Sep: 1.7%) and foreign currency deposits (3.6%; Sep: 0.7%), while fixed deposit continued to expand (6.1%; Sep: 6.8%) at a slower pace. However, sustained fall in saving deposits (-3.9%; Sep: -5.5%), other deposit accepted (-1.2%; Sep: -3.6%) and a substantial contraction in negotiable instruments of deposits issued (-17.4%; Sep: -7.1%), capped the growth upside.

• 2023 loan growth forecast is retained at 4.0% - 4.5% (2022: 5.7%)
  
  − There is an increasing likelihood that loan growth may settled around our lower end of the target range, in line with the 4Q23 GDP growth target of 3.7% (2Q23: 3.3%) and the overall 2023 GDP forecast of 3.5% - 4.0% (2022: 8.7%). Growth is expected to be supported by further improvements in consumer and business confidence, following steady labour market conditions, increased income levels and the increasingly clear policy direction demonstrated by the current government. Likewise, we continue to believe that BNM will hold its overnight policy rate (OPR) steady at 3.00% in 2024, given a stable inflation outlook and to support growth.

Source: Kenanga Research - 1 Dec 2023