Mixed sentiments on M’sia’s M3, loan growth outlook

Analysts have mixed views on the outlook of Malaysia’s broad money (M3) and loan growth given lacklustre current market conditions.

According to RHB Research Sdn Bhd (RHB Research), Malaysia’s M3 growth eased in June, weighed by lower demand for funds from the public and private sectors.

Likewise, it pointed out that both loans and deposit growth slowed in tandem with moderated loan demand from both corporates and households.

Nevertheless, RHB Research said: “Looking ahead, we expect M3 and loan growth to remain healthy at 5.5 and 4.9 per cent in 2019 from eight and 5.6 per cent in 2018.

“Given the moderation in money supply and credit creation, this should likely result in lower demand pressure on the prices of goods and services.”

On the other hand, Kenanga Investment Bank Bhd’s research team (Kenanga Research) highlighted that M3 in June grew at a slower pace of 5.1 per cent y-o-y (May: 5.6 per cent), a 16-month low on slower domestic demand activities. On a month-onmonth (m-o-m) basis, M3 fell by 0.3 per cent (May: 0.4 per cent).

“While the 2018 loan growth has been revised to 7.7 per cent from initial 5.6 per cent due to data revision from Bank Negara Malaysia (BNM), we maintained our projection that loan growth to ease further to 4.2 per cent in 2019.

“This is due to the ongoing slowdown in the economy, brought about by both external and domestic factors.

“As for the interest rate outlook, we believe BNM has room to cut the overnight policy rate by another 25 basis points if the economy deteriorates and provided the Fed embarks on more than one rate cut this year,” the research team opined.

RHB Research also believed that the worsening global trade outlook would weigh on Malaysia’s external trade, increasing the downside risks on interest rates and as such, BNM could lower interest rates by another 25bps to 2.75 per cent, bringing the policy rate to its lowest in nine years.

Meanwhile, on the outlook of the banking sector based on Malaysia’s loans growth, MIDF Amanah Investment Bank Bhd (MIDF Research) pegged a cautiously optimistic view on the banking sector’s prospects particularly after seeing the spike in loans growth.

“We believe that this could moderate the issue of net interest margin (NIM) compression. Moreover, The impact of the OPR cut to NIM will normalise. Besides, we believe that there are still positives for banks such as the downtrend of expenses and the low credit cost.

“This should be able to alleviate the weakness in income.

“Furthermore, we opine that banking stocks in general are currently undervalued given its fundamentals remains intact,” it said.

It said, although the banking system loans growth exceeded its expectations, it believed that it was still early to deduce whether it could sustain until the end of the year. — Bernama

Looking ahead, we expect M3 and loan growth to remain healthy at 5.5 and 4.9 per cent in 2019 from eight and 5.6 per cent in 2018.

RHB Research