Outstanding loans, corporate bonds growth moderates further in August

Growth for outstanding corporate bonds came in at 8.9% in August compared to a 10.3% jump in July

by NG MIN SHEN/ graphic by MZUKRI

MALAYSIA’S net financing growth continued to moderate in August, with a 5.2% increase after expanding 5.6% in July due to lower outstanding corporate bond growth amid high redemptions, said Bank Negara Malaysia (BNM).

Outstanding corporate bond growth came in at 8.9% in August compared to a 10.3% jump in July, BNM said in its monthly highlights for August 2019 released yesterday.

Net financing, which refers to outstanding loans of the banking system (excluding development financial institutions) and outstanding corporate bonds, has been declining since May, when growth stood at 6.3% before decreasing to 5.9% in June.

Outstanding household loans growth slid to 4.6% in August from 4.7% in July, while outstanding business loans growth was unchanged month-on-month at 2.5% in August.

The banks’ overall net impaired loans ratio was stable at 1%, while total provisions including regulatory reserves were at 126.3% of total impaired loans, providing a sufficient buffer against potential credit losses.

The ringgit depreciated by 2.2% against the US dollar in August alongside most regional currencies, driven by non-resident portfolio outflows particularly from the equity market as investor sentiment worsened amid the escalating US-China trade tensions.

These developments led the FTSE Bursa Malaysia KLCI to slide by 1.4% in the same month, in line with the performance of regional equity markets.

“Yields in the domestic bond market, however, declined during the month as the global bond rally contributed to improved demand for government bonds,” BNM said.

Following this development, the benchmark 10-year Malaysian Government Securities yield declined by 28.5 basis points.

Headline inflation was “broadly stable” at 1.5% for August versus 1.4% in July, as fresh food inflation increased to 1.8% from 1.1% in July on higher prices for some fresh food items such as chicken and eggs.

Excluding the impact of the changes in consumption tax policy, core inflation was unchanged at 1.5%.

Exports rebounded in July with a 1.7% expansion after contracting 3.4% in June, due to a turnaround in manufactured exports including semiconductors and non-electrical and electronics products.

“Going forward, export growth is expected to remain positive, albeit subdued. While significant uncertainties surrounding the external outlook remain, exports performance will be supported by Malaysia’s diversified export base,” BNM stated.

The central bank also said Malaysia’s reserves remained usable as at end-August this year, with official reserve assets at US$103.49 billion (RM546.57 billion) while other foreign-currency assets amounted to US$62.04 million.

For the next 12 months, the predetermined short-term outflows of foreign-currency loans, securities and deposits, which include scheduled repayment of external borrowings by the government and repayment arising from maturity of Bank Negara Interbank Bills, amounted to US$5.72 billion.

The short forward positions amounted to US$13.67 billion as at end-August 2019, reflecting the management of ringgit liquidity in the money market.