• Broad money (M3) growth moderated for the third straight month in May (5.8% YoY; Apr: 6.1%) and the lowest in three months
  
  − Growth moderation was largely due to slower growth in fixed deposits (4.0%; Apr: 4.6%) which hit an 18-month low, while its contribution to overall growth edged down to 1.8 ppts (Apr: 2.0 ppts). This was further weighed down by slower growth in demand deposits (7.1%; Apr: 8.3%) and foreign currency deposits (14.4%; Apr: 16.0%).
  
  − MoM: growth rebounded (0.2%; Apr: -0.3%), adding RM4.5b.

• Slower broad money supply growth also due to weak private sector securities
  
  − Claims on the private sector (5.1%; Apr: 5.3%): slowed due to lower securities (0.9%; Apr: 2.6%) which hit an 18-month low, but it was partially mitigated by sustained loans (5.7%; Apr: 5.7%).
  
  − Net claims on government (13.5%; Apr: 13.5%): sustained on higher claims on government (8.6%; Apr: 8.0%), while contraction in claims on deposits eased (-9.2%; Apr: -11.8%).
  
  − Foreign assets (12.9%; Apr: 11.6%): expanded and remained relatively elevated due to expansion in net foreign assets by BNM (8.5%; Apr: 5.8%) and supported by net foreign assets in the banking system (31.3%; Apr: 38.1%).

• Loan growth slowed (5.8% YoY; Apr: 6.0%) but within our target range
  
  − By purpose: slower growth due to significant moderation in working capital (3.5%; Apr: 4.7%), which hit a six- month low and subsequently, its contribution to overall growth fell to 0.8 ppts (Apr: 1.1 ppts). Meanwhile, residential property credit growth grew 7.6% (Apr: 7.5%), a pre-pandemic high, contributing almost half of overall loan growth.
  
  − By sector: growth was weighed down by the weak information & communication sector (-3.4%; Apr: 2.0%), as well as slower growth in the construction sector (0.7%; Apr: 2.4%).
  
  − MoM: expanded (0.3%; Apr: 0.1%) to a two-month high.

• Deposit growth inched down slightly (4.9% YoY; Apr: 5.0%)
  
  − Due to slower growth in foreign currency deposits (12.1%; Apr: 15.5%) and fixed deposits (2.6%; Apr: 3.4%).
  
  − MoM: growth rebounded (0.5%; Apr: -0.5%), adding RM11.3b to the banking system total deposits.

• 2024 loan growth forecast retained at 5.5% - 6.0% (2023: 5.3%) on the back of the positive economic outlook
  
  − Despite a slowdown in loan growth in May, we expect momentum to continue, supported by a lower base effect and an anticipated GDP growth expansion of 4.5% - 5.0% for 2024 (2023: 3.7%). This expectation is largely driven by resilient domestic demand, a recovery in manufacturing exports and continued expansion in the services sector.
  
  − On the monetary policy front, we still expect BNM to keep its overnight policy rate (OPR) unchanged at 3.00% for the rest of the year to support growth amidst global economic uncertainty. Although there is an upside risk to the domestic inflation due to the anticipated implementation of a targeted fuel subsidy in the 2H24, we believe the impact will be relatively controlled. This is due to expected increased productivity from higher investments approved last year. Additionally, continued government measures, such as potential higher cash handouts for targeted group, will help cushion the impact of higher prices.

Source: Kenanga Research - 1 Jul 2024