Inflation. Manufacturing. Loans Growth. Liquidity. NPLs. Update March 2021.

I personally believe we should always stay updated about what’s happening in the market instead of just listening to what our friend says. Unless of course our friend is also a top economist who’s reading and updating herself daily. Else, better for us to read because many times, the comments from these friends may be biased based on what she wants to achieve. So, best for us to read and be biased the way we want to be biased. 😛

The below news are taken from Bank Negara Malaysia (BNM). If you prefer to read in full do click here. The below are the ones which are more related to the real estate market. My comments are highlighted in my favourite colour.

Headline inflation increased to 1.7% in March

• Headline inflation increased to 1.7% in March (February: 0.1%).
• The main contribution to the higher headline inflation was the base effect from low domestic retail fuel prices in the corresponding period last year
  (RON95 petrol prices: March 2021: RM 2.05/ litre; March 2020: RM 1.74/litre). This base effect is expected to remain in the second quarter of 2021 and dissipate thereafter.
• Underlying inflation, as measured by core inflation, remained stable at 0.7%.

Contrary to what we believe, inflation is not always bad. High inflation is definitely bad. It’s not necessary a good news if the inflation is always zero or even negative. It simply meant demand is falling versus available supply.

Higher IPI in February driven by manufacturing

• Overall IPI improved slightly in February to 1.5% (January: 1.2%), as higher manufacturing production more than offset further contraction in the mining production and electricity generation.
• The E&E industry recorded double-digit growth of 10.3% (January: 7.9%) driven by global demand from the tech-upcycle. Manufacturing activity was also supported by the healthcare segment, namely from rubber-based and pharmaceutical products.

Malaysia’s manufacturing sector employs 2.55 million. Maybe more if manufacturing numbers continue increasing. Thus this is an important number because this also tells whether it will help to reduce unemployment numbers or contribute to the number instead. Currently, the unemployment number as at February 2021 is 4.8 percent.

Continued growth in net financing

• Net financing expanded at 4.5% reflecting the increase in outstanding corporate bond growth (March: 5.9%, February: 4.5%) and outstanding loan growth (March: 3.9%, February: 3.7%).
• Outstanding household loan growth increased to 5.7% (February: 5.1%). Higher loan disbursements were recorded for the purchase of cars and residential properties.
• For businesses, outstanding loans grew at 1.1% (February: 1.0%). During the month, higher loan disbursements and repayments were observed across most sectors and purposes.

Corporate bonds increasing means they are borrowing. It may be to pay debts but it could also be for expansion. Household loan growth is showing an increase and this also reflect confidence too. No one is going to buy a new car or a new home if they fear losing their job within the next few months.

Ample liquidity in the banking system amid stable funding conditions

• Banking system continued to maintain healthy liquidity buffers with the liquidity coverage ratio (LCR) remaining strong in March 2021 (February: 147.1%).
• Banks’ funding profile also remained stable amid sustained strong growth in retail deposits.

Liquidity in the banking system is positive because this meant that if one wants to borrow, the banks have the funds to lend. Retail deposits meant savings from the people and an increasing number just mean an increasing number. If people save more, it may show they have less confidence with what to invest or they may be earning more, thus have more savings. Look at both sides but growing number is generally good.

Sound risk management practices by banks will support asset quality in the period ahead

• Overall gross and net impaired loans ratios were broadly sustained at 1.6% and 1.0%, respectively.
• Banks continued to set aside additional provisions against potential credit losses, which currently stand at 1.8% of total banking system loans.

Impaired Loans means Non-Performing Loans (NPLs). This number of 1.6% (gross) and 1.0% (net) remains on a low level and even if some say this is because of moratorium and that it may go worse but do note that banks have set aside provisions for it. As per BNM’s report, this is 1.8% of total banking system loans.

You can also continue to keep yourself updated by reading BNM’s publications periodically too. This is their website.

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