Banking system records strong liquidity in August, says BNM


THE banking system maintains a strong liquidity coverage ratio with excess liquidity buffers standing at RM220 billion in the month of August.

In its recent monthly statistics, Bank Negara Malaysia (BNM) said ample liquidity in the banking system is supportive of lending activities and for banks to meet demanding needs.

The loan-to-fund and loan-to-fund-and-equity ratios remained stable at 82.2% and 71.7% respectively, underpinned by sustained growth in deposits, said BNM.

The statistics revealed that net financing expanded by 4.2% (July: 4.1%) supported by both outstanding corporate bonds, which rose 3.9% in last month (July: 3%), and total loans although it eased by 4.4% (July: 4.5%).

Household loan growth increased to 4.8% (July: 4.3%). The central bank said disbursement remained “steady” despite moderating slightly from the high level reached in July, mainly in loans for the purchase of residential property.

Outstanding business loan growth, however, moderated to 3.3% (July: 3.9%) amid lower disbursements for working capital financing.

Kenanga Investment Bank Bhd (Kenanga Research) said by purpose, loan growth eased in August due to a slowdown in loan growth for working capital, which recorded a growth of 2.6% (July: 4.6%), as more businesses resumed operations and generated improved revenue.

“This was partly offset by the first expansion in 21 months for vehicle loans (1.5%; July: -0.2%) amid ongoing sales tax exemption,” it said in a note.

In terms of loans by sector, the firm said moderation in loan growth for finance, insurance and business activities which recorded a growth of 4.2% last month (July: 7.1%) masked the rising credit growth for the household sector.

The firm also noted that broad money (M3) growth advanced to an 18-month high in August by 6.4% (July: 6.1%) against the backdrop of a low interest-rate environment and massive fiscal injection.

On a month-on-month basis, M3 growth eased to a six-month low by 0.1% (July: 0.5%).

“Growth was underpinned by the fourth straight month of a double-digit expansion in M1 (money supply) (17.8%; July: 15.7%), reflecting a bullish stock market, outpacing slight moderation in narrow quasi-money (3.76%; July: 3.85%),” it said.

Kenanga Research also retained its 2020 loan growth forecast between 1% and 2% compared to 3.9% in 2019 due to uncertainties surrounding Covid-19.

It said the recent surge in the number of cases domestically, along with the implementation of a Targeted Enhanced Movement Control Order in affected zones, is expected to weigh on business and consumer confidence, leading to a slowdown in loan growth and the ongoing economic recovery.

“However, barring a nationwide reinstatement of lockdown measures, we still expect BNM to retain the policy rate at 1.75% for the remainder of 2020, consistent with its less-dovish monetary policy statement and given that the government is already scheduled to disburse additional fiscal stimulus in the fourth quarter of 2020,” it added.

Meanwhile, the central bank said the mixed performance of domestic financial markets last month was driven by a confluence of global and domestic factors.

In the global front, investor risk appetite improved following changes made by the US Federal Reserve (Fed) to its longer-run goals and monetary policy strategy.

“Consequently, this led to non-resident inflows and the ringgit exchange rate appreciated by 1.6% against the US dollar during the month. While the government bond market was supported by these inflows, the 10-year Malaysian Government Securities yield increased marginally by 6.2 basis points.

“This trend was consistent with other longer-end bond yields in regional financial markets, which tracked the steepening of the US yield curve towards the end of the month,” it said.

BNM added that this also reflected higher-long run inflation expectations following the Fed’s announcement that it would tolerate higher inflation to make up for periods of inflation undershooting the new framework of average inflation targeting.