Malaysia’s broad money (M3) growth accelerated to a two-year high of 5.8% year-on-year (YoY) in May, up from 5.0% in April, driven primarily by a surge in demand and foreign currency deposits alongside strong credit expansion in both the public and private sectors.
According to an economic report by Kenanga Investment Bank Berhad (Kenanga), the monthly momentum rebounded sharply, climbing 0.5% month-on-month (MoM) to add RM12.2 billion to the financial system, recovering from April’s flat growth of 0.02%.
The expansion in M3 was strongly underpinned by demand deposits, which jumped 12.4% YoY (April: 10.6%), and a sharp acceleration in foreign currency deposits to 6.0% (April: 3.2%). Together, these components contributed 3.2 percentage points to the aggregate M3 expansion.
On the credit front, net claims on the government jumped 6.1% YoY—reaching a 19-month high—spurred by a recovery in government claims (2.5% vs -2.9% in April) and moderated deposit withdrawals. Concurrently, net claims on the private sector edged up to an 86-month high of 6.6%, sustained by robust loan growth and an 11.7% expansion in corporate securities.
Conversely, net foreign assets contracted marginally by 0.2% YoY due to slight capital withdrawals within the commercial banking system and Bank Negara Malaysia (BNM).
Malaysia’s banking system loan growth inched up to an 18-month high of 5.7% YoY in May (April: 5.6%). This was driven by short-term financing needs, with working capital loans accelerating to an eight-month high of 4.2% (April: 3.6%), signaling improved domestic business activities. Non-residential property financing also maintained a steady expansion of 7.6%.
Sector-wise, credit expansion was heavily supported by a 47.9% spike in the information and communication sector and a recovery in manufacturing loans, which grew 3.8% (April: 1.4%). On a MoM basis, loans expanded by RM12.4 billion, outpacing the long-term historical average.
Meanwhile, total banking deposits achieved a 22-month high, accelerating to 4.4% YoY (April: 3.4%). This rebound added RM11.9 billion to the system, effectively reversing April’s RM13.9 billion decline, led by sharp demand deposit accumulation (12.1%) and a 12.5% recovery in negotiable instruments of deposits (NID).
Despite credit growth exceeding its expectations for the second consecutive month, Kenanga has maintained its full-year 2026 loan growth forecast at 5.0% to 5.5% (2025: 4.8%).
The research house attributes the recent upside surprises to government policy initiatives, such as BNM’s RM5.0 billion MSME financing facility and the RM5.0 billion expansion in Syarikat Jaminan Pembiayaan Perniagaan (SJPP) guarantees, which bolstered credit access for small and medium enterprises. However, Kenanga expects credit momentum to moderate in the second half of 2026 (2H26) due to persistent external uncertainties, softer business sentiments, and rising domestic cost pressures.
Regarding monetary policy, Kenanga projects BNM will keep the Overnight Policy Rate (OPR) unchanged at 2.75% for the remainder of 2026.
While domestic inflation risks remain tilted to the upside due to supply-side shocks and energy price volatility, downside risks to overall economic growth persist. Against a backdrop of global uncertainty, the house believes BNM will hold a neutral policy stance to support domestic economic activity while preserving financial stability.
