Economy Malaysia summary: Inflation is 2.2%. Net financing at 4%. Gross impaired loans at 1.7%. Means what?

Categories: Malaysian economy and BNM

It’s important to always note whatever people say by looking at actual numbers. They say market is bad, ask them why they say so and ask them to elaborate and ask them for the numbers supporting what they say. They say market is going to recover, ask them all the same questions too. Let’s always look at numbers so guide what we do yeah. Below would be the latest numbers. My conclusion will be at the end.

News Release from Bank Negara Malaysia. Click here for the website source.

Monetary and Financial Developments in July 2021

Embargo : Not for publication or broadcast before 1500 on Monday, 30 August 2021
30 Aug 2021

Headline inflation declined to 2.2% in July

Headline inflation declined to 2.2% in July (June: 3.4%), reflecting lower inflation for transport, as well as housing and utilities respectively.
The lower housing and utilities inflation (July y-o-y: 0.7%; June: 3.2%) was mainly due to the implementation of the three-month electricity tariff rebate, beginning July 2021.
Underlying inflation, as measured by core inflation, remained stable at 0.7%.

Moderate IPI growth at 1.4% following imposition of FMCO

Overall IPI in June recorded moderate growth of 1.4% as FMCO restrictions limited production activity to only essentials and those involved in global value chains. Electricity production also declined amid lower demand during FMCO.
However, manufacturing production continued to expand due to firms’ adaptability through extending working days and operationalising new production capacity, particularly among E&E, and selected primary-related industries.

Continued moderation in net financing growth in July

Net financing growth moderated to 4.0% in July (June: 4.3%) due to lower outstanding loan growth (July: 3.0%, June: 3.4%) and outstanding corporate bond growth (July: 6.5%, June: 6.9%).
Outstanding household loans grew by 4.2% (June: 5.2%), with moderation across all loan purposes amid the containment measures and mobility restrictions.
For businesses, outstanding loan growth increased to 1.3% (June: 0.9%), supported by higher working capital loan growth (July: 2.5%, June: 1.6%).

Domestic financial markets continue to be influenced by COVID-19 developments

In July, financial markets were affected by concerns surrounding the global and domestic growth outlook following the rise in the spread of COVID-19.
Globally, these concerns led to an increase in demand for safer assets, contributing to a decline in US Treasury yields and a broad-based strengthening of the US dollar. In line with this, the 10-year MGS yield declined by 11.3 basis points and the ringgit depreciated by 1.8% against the US dollar.
The FBM KLCI had also declined by 2.5% as investor sentiments were affected by the rise in COVID-19 infections domestically and the imposition of stricter containment measures (FMCO) in Kuala Lumpur and Selangor.

Banking system liquidity position remained supportive of financial intermediation

The banking system continued to maintain healthy liquidity buffers with the liquidity coverage ratio (LCR) remaining strong in July (June-21: 149.1%).
Banks’ funding profile remained stable amid sustained growth in deposits as individuals, businesses and non-bank financial institutions continue to maintain precautionary cash buffers.

Asset quality remains supported by sound risk management practices of banks

Overall gross impaired loans ratio increased marginally to 1.7% (Jun-21: 1.6%), driven by the household segment.
Banks continue to set aside additional provisions against potential credit losses, which currently stand at 1.9% of total banking system loans.
Banks continue to facilitate repayment assistance for viable borrowers facing temporary financial difficulties amid credit risk outlook that remains challenging.

— end of media release from BNM —

Economy is definitely still moving

Inflation meant that consumption and demand for goods and services are still present. Just go to MidValley Megamall today to understand why it’s slowly recovering yeah.

Loans growth simply meant people still have a stable job and they are still buying. It can be a property or a car but in order for the banks to lend, the borrower has to qualify in the first place. Savvy?

Gross impaired loans means the potential bad debts and these are also growing slowly. I think we need to also note that there are definitely people with financial stress. The more important this would be the non-performing loans yeah. With the current moratorium, this should also help the situation too.

Let’s wish for the economy to move even faster once the economy is fully reopened. It’s happening yeah.

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