Household loans growth underlie recovery

BNM says higher loan disbursements and repayments are observed across most sectors and purposes


MALAYSIA’S outstanding household loans grew by 5.7% in March 2021 compared to 5.1% growth recorded in February on higher loan disbursements recorded for the purchase of cars and residential properties.

Bank Negara Malaysia’s (BNM) monthly highlights for March 2021 stated outstanding loans for businesses grew at 1.1% compared to 1% in February, underlying a recovery in the general economy from the impact of the Covid-induced movement control measures.

“During the month, higher loan disbursements and repayments were observed across most sectors and purposes.

“Net financing for the month under review expanded at 4.5% in March, reflecting the increase in outstanding corporate bond growth, which stood at 5.9% versus 4.5% in February, as well as outstanding loan growth of 3.9% against 3.7% in the previous month,” the central bank noted.

The local banking system enjoyed ample liquidity in March 2021 amid stable funding conditions. Malaysia’s banking system continued to maintain healthy liquidity buffers with the liquidity coverage ratio remaining strong in March at 145.1% versus 147.1% in February.

“Banks’ funding profile also remained stable amid sustained strong growth in retail deposits. BNM added that sound risk management practices by banks would support asset quality in the period ahead.

“Overall gross and net impaired loans ratios were broadly sustained at 1.6% and 1% respectively,” BNM added.

Banks continued to set aside additional provisions against potential credit losses, which currently stand at 1.8% of total banking system loans.

BNM said domestic financial markets were affected mainly by external developments in March, particularly by the rise in long-term US Treasury yields, which reached their highest level for the year at the end of the month amid higher growth and inflation expectations in the US.

Consequently, the US dollar also strengthened, which led to a broad-based weakening of other advanced and emerging-market currencies against the greenback.

During the month, the ringgit depreciated by 2.6% against the US dollar, while the 10-year Malaysian Government Securities yield increased by 18.3 basis points.

The benchmark FTSE Bursa Malaysia KLCI declined marginally by 0.3%, as bond yields surged, investor sentiments were affected by lingering uncertainties surrounding the path of the Covid-19 pandemic globally and expectations for a faster US monetary policy tightening, the central bank stated.

Meanwhile, headline inflation increased to 1.7% in March versus 0.1% in February mainly contributed by the base effect from low domestic retail fuel prices in the corresponding period last year.

The price of RON95 petrol in March 2021 averaged RM 2.05 per litre compared to RM1.74 per litre in March 2020.

The base effect is expected to remain into the second quarter and dissipate thereafter. Underlying inflation, as measured by core inflation, remained stable at 0.7%.

Overall Industrial Production Index improved slightly in February to 1.5% from 1.2% in January as higher manufacturing production more than offset further contraction in mining production and electricity generation.

The electrical and electronics industry recorded double-digit growth of 10.3% in February from 7.9% in January driven by global demand from the tech upcycle.

Manufacturing activity was also supported by the healthcare segment, namely from rubber-based and pharmaceutical products, said BNM.