Malaysia’s broad money supply (M3) grew 4.1% year-on-year in December, up from 3.9% in November, driven mainly by a sharp increase in demand deposits, according to Kenanga Research.
The expansion came after M3 growth dipped to a four-month low in November. On a month-on-month basis, M3 rose by a strong 1.6% in December, the fastest pace since March 2018, adding RM41.3 billion — the largest monthly increase on record.
Kenanga said the pickup in M3 was largely driven by demand deposits, which surged 10.3% year-on-year in December from 7.5% in November, contributing 2.1 percentage points to overall M3 growth. However, this was partly offset by a sharp slowdown in foreign currency deposits, which grew at a more modest 2.2% compared with 6.7% previously.
Domestic activity offsets weaker foreign assets
Firmer private sector activity helped cushion the impact of weaker net foreign assets (NFA). Net claims on the government remained unchanged at 1.3% year-on-year for a second straight month, as weaker government deposits contracted by 3.9%, partly offset by a modest increase in government claims.
Claims on the private sector edged slightly higher to 6.0% from 5.9% in November, supported by stronger growth in securities holdings, which rose 12.5% year-on-year. Meanwhile, loan growth within the private sector eased marginally to 5.1%.
Net foreign assets slowed sharply to 1.5% year-on-year, the weakest pace in four months, reflecting a contraction in Bank Negara Malaysia’s (BNM) net foreign assets, which fell 1.8% compared with a 7.8% increase previously. This was partly cushioned by a strong rise in banking system foreign assets, which grew 13.2%, largely due to the repatriation of export receipts.
Loan growth slows to lowest since October 2023
Overall loan growth moderated to 4.8% year-on-year in December from 5.2% in November, marking the slowest pace since October 2023 and coming in below Kenanga’s house projection of 5.5% to 6.0%.
By purpose, loan growth was weighed down by slower expansion in working capital loans, non-residential property financing and other loan categories, reducing their combined contribution to 1.4 percentage points from 1.9 points previously.
By sector, lending growth slowed across finance and insurance, manufacturing, wholesale and retail trade, and real estate. These sectors’ combined contribution fell to 0.9 percentage points from 1.9 points in November.
Household loan growth eased slightly to 5.3% from 5.4%, although its contribution to overall loan growth remained unchanged at 3.2 percentage points for a second consecutive month.
On a month-on-month basis, loan growth moderated to 0.4% from 0.5%, below the long-term average of 0.8%, adding RM9.0 billion — the smallest monthly increase in four months.
Deposit growth rebounds strongly
Deposit growth strengthened to 3.4% year-on-year in December from 2.7% in November, reversing the previous month’s slowdown. The improvement was supported by strong growth in demand deposits, which rose 10.0%, and other deposits accepted, which increased 8.5%, lifting their combined contribution to 2.9 percentage points.
On a monthly basis, deposits rebounded sharply by 1.4% after two consecutive months of decline, adding RM37.5 billion — the highest increase since February 2023.
2026 outlook: moderate credit growth, stable policy rate
Following weaker-than-expected loan growth in 2025, Kenanga now expects loan growth to expand within a range of 5.0% to 5.5% in 2026, supported by a favourable base effect and resilient domestic demand.
In the near term, loan growth is expected to remain near current levels due to a high base in early 2025. Seasonal demand ahead of Chinese New Year in February and Hari Raya Aidilfitri in March is expected to provide some support.
Kenanga maintained its outlook for the overnight policy rate (OPR), projecting no change through 2026. The research house expects BNM to keep the OPR steady at 2.75%, barring unexpected global shocks.
“With GDP growth steady and inflation manageable, BNM has room to prioritise financial stability amid ongoing global uncertainty,” Kenanga said.
