The local banking system recorded stronger loan growth in May, supported by resilient business financing and stable household borrowing, although leading indicators pointed to some moderation in future credit demand, according to Hong Leong Investment Bank (HLIB) Research.
The research house said total outstanding loans expanded 5.7% year-on-year in May, slightly faster than the 5.6% growth recorded in April, driven mainly by an improvement in business lending.
Business loans accelerated 7.0% year-on-year from 6.2% previously, with stronger financing demand from the information and communications, wholesale and retail trade, and manufacturing sectors.
Household loan growth remained steady at 5.2%, underpinned by continued demand for personal financing, credit cards and residential property purchases.
At the same time, monetary conditions strengthened during the month, with narrow money supply (M1) rising 11.4% year-on-year from 9.8% in April, while broad money supply (M3) accelerated to 5.8% from 5.0%.
Reserve money also rebounded 8.0% after contracting 2.7% previously as the impact of last year’s statutory reserve requirement adjustment fully normalised.
Despite stronger outstanding loans, HLIB noted that leading credit indicators softened.
Loan applications contracted 2.8% year-on-year in May after expanding 18.4% in April, reflecting weaker demand from both households and businesses.
Business loan applications declined 4.3%, with lower demand across finance, insurance and business services, information and communications, manufacturing, as well as wholesale and retail trade.
Household loan applications also weakened across most financing categories.
Loan approvals slowed significantly to 2.7% year-on-year from 14.6% in April, mainly due to a 5.2% decline in household loan approvals, while business loan approvals moderated to 8.8% from 15.0%.
Loan disbursements also eased, increasing 1.6% compared with 10.4% in the previous month.
Meanwhile, deposit growth improved to 4.4% year-on-year from 3.4%, supported by stronger growth in business deposits, which rose 6.9%, and foreign deposits, which increased 8.4%.
However, household deposits remained subdued, growing just 1.8% year-on-year while declining 0.4% on a monthly basis, widening the gap between household deposits and household borrowing.
The report also highlighted a sharp increase in corporate bond issuance, with gross issuances surging to RM31.7 billion in May from RM12.7 billion a month earlier.
The increase was largely driven by fundraising activities in the finance, insurance, real estate and business services, utilities, and wholesale and retail trade sectors.
On capital flows, foreign investors turned net sellers of Malaysian government bonds, recording RM6.7 billion in net outflows during May after marginal net inflows in April.
Foreign investors also sold RM3.5 billion worth of Malaysian equities during the month as expectations for near-term US Federal Reserve interest rate cuts diminished amid heightened geopolitical tensions in the Middle East.
Despite softer leading loan indicators, HLIB believes the domestic economy remains resilient, supported by stronger-than-expected export performance and manageable inflation.
The research house maintained its expectation that Bank Negara Malaysia will keep the Overnight Policy Rate (OPR) unchanged at 2.75% throughout 2026, citing the economy’s resilience and a stable inflation outlook.
