Mixed monetary indicators in February
PETALING JAYA: Malaysia’s monetary indicators were mixed in February, as loan growth hit a 16-month high amid slowing broad money expansion.

In a note, Hong Leong Investment Bank (HLIB) Research said the narrow money supply or M1 accelerated to 6.9% year-on-year (y-o-y), but the growth of broad money supply (M3) slowed to 5.7% y-o-y.

M1 is a measure of money supply that the central bank defines as the amount of currency in circulation – notes and coins issued – plus current accounts.

M3 comprises currency in circulation and non-bank private sector deposits with commercial banks, Islamic banks, finance companies, merchant banks and discount houses. However, it excludes interplacements among the financial institutions

HLIB Research also noted that the country’s total leading loan indicators weakened in February, following contractions in both loan applications and loan approvals.

Loan applications declined by 11.3% y-o-y amid contractions in both the household and business sectors.

Lower applications were seen in the household sector for passenger cars, property as well as credit cards.

As for the business sector, loan demand declined particularly for electricity, gas and air conditioning supply, manufacturing, as well as transportation and storage.

Similarly, loan approvals also declined by 16.8% y-o-y in February, following double-digit contractions in both the household and business sectors.

Nevertheless, total loan growth in February inched higher by 5.8% y-o-y amid stronger household and business loans. This was the fastest growth in 16 months.

“In the household sector, loan growth increased slightly while loan applications declined, signalling cautious consumer sentiment amid the high cost of living.

“Following modest demand-led inflationary pressure, we maintain our expectations for Bank Negara to maintain the overnight policy rate (OPR) at 3%,” according to HLIB Research.

Meanwhile, Kenanga Research said the banking sector’s loan growth is expected to be sustainable in the near term, in line with its projected economic growth of 4.5%-5% for 2024.

This will be driven by resilient domestic demand and a gradual recovery in the manufacturing sector, expected to benefit from a technology upcycle.

Kenanga Research has forecast loan growth of 5%-5.5% for 2024. Last year, loans expanded by 5.3%.

On deposits, the research house said growth in February moderated to 4% y-o-y. This was the slowest in 30 months.

The slower growth was mainly weighed by a sharp moderation in foreign currency deposits, which hit a five-month low.

“This was further dragged by slower demand deposits and a persistent weakness in negotiable instruments of deposits issued.

“Nevertheless, expansion in saving deposits partially mitigated the growth slowdown,” it added.

Looking ahead, Kenanga Research maintained its expectation that Bank Negara will hold its OPR at 3% for the rest of the year.

“This is given the lingering downside risk to economic growth amid uncertainty in the external sector, while keeping the inflation outlook in check amid the potential impact of targeted subsidy measures in the second half of 2024.”
Banking
PETALING JAYA: Malaysia’s monetary indicators were mixed in February, as loan growth hit a 16-month high amid slowing broad money expansion.