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ECONOMICS
                                                                                     November 2007


Bank Muamalat Malaysia Berhad




MONTHLY ECONOMIC UPDATE

              Banking System
              Loans growth accelerated to 19-month high in September 2007

              Industrial Production
              Production slowed amidst moderations across the board in August 2007

              External Trade
              Exports steadier albeit marginally in August 2007

              Consumer Prices
              Inflation eased slightly in September 2007

              External Reserves
              Reserves higher as at 1H October 2007

              Leading Indicators
              Leading Index eased in August 2007

              Primary Indicators
              Bank & Industry

              Economics Illustrated
              Recent Trends in Residential Property Stocks and Sales




FOR INTERNAL CIRCULATION ONLY
                                                                                           [07/10/21]
Refer to important disclosures at the end of this report.




Bank Muamalat Malaysia Berhad
ECONOMICS
                                                                                                                                                                                                                                                                                                                                       November 2007
 BANKING SYSTEM

 Loans growth accelerated to     Outstanding loans for the total banking system grew by 9.5% y-o-y in September
 19-month high in September      2007, its sharpest rise in 19 months, buoyed by expansions in both the business
                                 and household loans. Business loans growth accelerated to 14.8% from a year ago,
                                 after growing by 12.8% in August, while household loans grew by 7.3% following a
                                 growth of 7.2% the previous month.
                                 Higher loans growth were recorded by most business segments, most notable was
                                 seen in the transport and communications sector, which registered its third
                                 consecutive triple-digit gain, growing by 182.2% y-o-y in the month under review.
                                 Manufacturing sector loans, which accounts for nearly 25% of total business loans,
                                 however, saw a slight easing, down to 9.0% from 9.2% in August. Meanwhile,
                                 outstanding credit for SMEs on the whole, accelerated to 7.0% in September, from
                                 a growth of 5.9% the previous month.
                                 Mixed results were achieved by the main household loans groups, as mortgage
                                 loans accelerated to 7.5% y-o-y from 7.3% in August while passenger car loans
                                 growth narrowed to 2.8% from 3.1% previously. Consumption credit, however, rose
                                 16.6% after slipping to 16.5% the previous month.
                                                                                                                                                                                                                                                                                                                                                                  (% Y-o-Y)
                                                                                                                                                                                                              (% Y-o-Y)
                                       (% Y-o-Y)
                                                                                                                                                                                                             16.0                                                                                                                                                               12.0
                                 9.5

                                                                                                                                                                                                             14.0
                                                                                                                                                                                                                                                                                                                                                                                11.0
                                 8.5                                                                                                                                                                         12.0                            Household loans (rhs)
                                                                                                                                                                                                                                                                                                                                                                                10.0
                                                                                                                                                                                                             10.0
                                                                                                      Banking system
                                                                                                                                                                                                                                                                             Business loans
                                 7.5
                                                                                                     outstanding loans                                                                                        8.0                                                                                                                                                               9.0
                                                                                                                                                                                                                                                                                  (lhs)
                                                                                                                                                                                                              6.0
                                 6.5
                                                                                                                                                                                                                                                                                                                                                                                8.0
                                                                                                                                                                                                              4.0

                                                                                                                                                                                                              2.0                                                                                                                                                               7.0
                                 5.5
                                                         Oct-06

                                                                    Nov-06

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                                                                                                                                                                                                                                                                                                                                                       Aug-07
 Islamic financing made          Islamic financing growth outpaced total loans growth in September 2007, rising by
 stronger gains                  10.2% from a year ago, after bottoming at 9.1% in July. Still, it remains below the
                                 13.8% growth rate realised a year ago.
                                 Most financing sectors experienced stronger growth rates. Household credit,
                                 which accounted for 62.7% of total financing, grew by 8.2% y-o-y in September,
                                 stronger than the previous month’s growth of 7.8%. Financing for passenger cars,
                                 grew marginally stronger to 6.5%, compared to 6.4% in August. There was
                                 however, a slight pull back in outstanding financing for residential property, which
                                 grew by 4.8% in September from 4.9% in August.
                                 Share of businesses financing had also been making steady gains over the past
                                 eighteen months. The second largest portion of total Islamic financing after
                                 automobile financing (in terms of purpose), was taken up by working capital, which
                                 grew by 41.6% in September from a growth of 38.9% in August.
                                 Islamic financing share of total banking system loans, however, stagnated to 13.1%
                                 for a second month, after falling to an eleven month low of 13.0% in July. Total
                                 outstanding Islamic financing was RM84.8 billion at end-September 2007.
                                  (% Y-o-Y)
                                14.0                                                                                                                                                                               (% )
                                                                                                                                                                                                            13.3
                                13.0

                                                                                             Islamic banking                                                                                                13.2
                                12.0
                                                                                          outstanding financing
                                                                                                                                                                                                                                                                Islamic financing share
                                11.0
                                                                                                                                                                                                                                                                     of total loans
                                                                                                                                                                                                            13.1
                                10.0

                                                                                                                                                                                                            13.0
                                 9.0
                                                                                                                                                                                                                                   Oct-06

                                                                                                                                                                                                                                              Nov-06

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                                                                                                                                                                                                                                                                        Jan-07

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                                                                                                                                                                                                                                                                                                                                                                                           2
Bank Muamalat Malaysia Berhad
ECONOMICS
                                                                                                                                                                                                                                                                                                                   November 2007


                                   Table 1: Financing
                                      Growth rate (% y-o-y)                                                                                                                                               Sept '06                              July '07                                Aug '07                                       Sept '07
                                      Banking system (excl Islamic banking)                                                                                                                                    6.6                                  8.0                                    8.5                                             9.4
                                      Islamic banking                                                                                                                                                       13.8                                    9.1                                    9.5                                          10.2
                                      Muamalat                                                                                                                                                              33.4                                  23.7                                    26.1                                          23.2

                                      Muamalat share (%)                                                                                                                                                  Sept '06                              July '07                                Aug '07                                       Sept '07
                                      - of total banking system                                                                                                                                                0.9                                   1.0                                   1.0                                             1.0
                                      - of Islamic banking                                                                                                                                                     6.8                                   7.1                                   7.2                                             7.2


Credit applications surged again   Credit applications continued to surge, rising by 58.3% y-o-y in September, up from
                                   the previous month’s gain of 52.5%. The robust trend was fuelled by soaring credit
                                   applications from the business sector, which had accelerated to 70.9%, compared to
                                   an increase of 51.7% last month. SME applications however, eased to 34.1% from a
                                   growth of 47.8% in August. Household applications slipped to 43.7% after growing by
                                   53.7% previously.
                                                                                                                                                                                                             (% Y-o-Y)
                                       (% Y-o-Y)
                                                                                                                                                                                                        120.0
                                   80.0


                                                                                                                                                                                                          90.0
                                                                          Banking system
                                   60.0
                                                                                                                                                                                                                                       Business applications
                                                                         loan applications
                                                                                                                                                                                                          60.0
                                   40.0


                                                                                                                                                                                                          30.0
                                   20.0

                                                                                                                                                                                                                                                                                                Household applications
                                                                                                                                                                                                           0.0
                                     0.0


                                                                                                                                                                                                         (30.0)
                                   (20.0)




                                                                                                                                                                                                                              Oct-06

                                                                                                                                                                                                                                        Nov-06

                                                                                                                                                                                                                                                   Dec-06

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                                                                                                                                                                         Aug-07




Business and household             In contrast, loan approvals in September moderated, slowing to 45.2% y-o-y from
approvals ease further             54.5% the previous month as both business and household sectors experienced
                                   moderations in credit approvals.
                                   Businesses approvals eased to 61.4% y-o-y from 71.8% in August, although there
                                   was higher approvals growth for SMEs which was up by 54.0%, compared to 30.0%
                                   previously. Household approvals was also slower, easing to 28.6%, after growing by
                                   39.1% in August. Among the segments which experienced contractions in loan
                                   approvals were those for the purchase of residential property and consumption
                                   credit, which eased to 17.6% and 10.1% respectively, from 19.6% and 10.3% the
                                   previous month. Loans for purchase of securities slowed further to 50.2% after
                                   expanding by 151.8% in August and peaking at 735.2% in July.
                                           (% Y-o-Y)                                                                                                                                                    (% Y-o-Y)                                                                                                                                         (% Y-o-Y)
                                           100.0                                                                                                                                                        175.0                                                                                                                                                                60.0

                                                                                                                                                                                                        150.0
                                            80.0
                                                                                                                                                                                                                                                                                                                                                                             40.0
                                                                                                                                                                                                                               Business approvals
                                                                                                                                                                                                        125.0
                                                                                                                                                                                                                                      (lhs)
                                                                                  Banking system
                                            60.0
                                                                                                                                                                                                        100.0                                                                                                                                                                20.0
                                                                                  loan approvals
                                            40.0                                                                                                                                                         75.0
                                                                                                                                                                                                                                                                                                Household                                                                    0.0
                                                                                                                                                                                                         50.0
                                            20.0
                                                                                                                                                                                                                                                                                              approvals (rhs)
                                                                                                                                                                                                         25.0
                                                                                                                                                                                                                                                                                                                                                                             (20.0)
                                             0.0
                                                                                                                                                                                                           0.0

                                                                                                                                                                                                        (25.0)                                                                                                                                                               (40.0)
                                           (20.0)
                                                                                                                                                                                                                             Oct-06

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                                                                                                                                                                                  Aug-07




Disbursements climbed back up      Loan disbursements growth regained its momentum in September, rebounding
                                   18.0% y-o-y after easing to 15.2% in August, mainly due to higher allocation to the
                                   business sector. Disbursements to businesses was up by 19.9% from a previous
                                   increase of 11.4%, as SMEs received 9.3% more from a year ago, stronger than last
                                   month’s growth of 5.3%. Meanwhile, disbursements to households moderated further
                                   to 13.7%, after gaining 24.6% in August.




                                                                                                                                                                                                                                                                                                                                                                                      3
  Bank Muamalat Malaysia Berhad
ECONOMICS
                                                                                                                                                                                                                                                        November 2007


 Asset quality improved to      Asset quality strengthened to a fresh new low. Net non-performing loans (NPL) for
 new record low yet again       the entire banking system gauged on a three-month basis improved to 3.5% of net
                                total loans in September from 3.6% in August.
                                Table 2: NPF Ratios
                                  Gross NPF Ratio (%)                                                                                                          Sept '06                         July '07                            Aug '07                     Sept '07
                                  Banking system (3 mth)                                                                                                           8.9                               7.4                                7.2                          6.9
                                  Banking system (6 mth)                                                                                                           7.6                               6.4                                6.2                          6.0
                                  Muamalat*                                                                                                                        7.2                               9.2                                9.2                          9.1

                                  Net NPF Ratio (%)                                                                                                            Sept '06                         July '07                            Aug '07                     Sept '07
                                  Banking system (3 mth)                                                                                                            5.1                              3.8                                3.6                          3.5
                                  Banking system (6 mth)                                                                                                            4.0                              3.0                                2.9                          2.8
                                  Muamalat*                                                                                                                         4.3                              6.1                                6.0                          5.7

                                •Note: 3 month basis effective 2007


 Core deposits growth slowed    Banking system core deposits moderated for the second straight month, easing to
 for second month               13.0% y-o-y, from 14.0% in the month under review. This was due to lower
                                placements in fixed and savings deposits which only grew by 11.0% and 11.9% this
                                month, compared to 12.8% and 12.2% in August. Demand deposits growth,
                                meanwhile, grew a stronger 21.0% from 19.6% previously.
                                Islamic banking core deposits similarly softened, increasing 34.1% y-o-y compared
                                to a growth of 38.8% in August on reduced placements in investment and demand
                                deposits. Investment deposits, which account for nearly 65% of total core deposits,
                                grew a slower 44.8% compared to 49.3% in August, while demand deposits
                                increased by only 15.4% in September, compared to 22.6% previously. Further
                                core deposits slowdown was however mitigated by a rise in savings deposits which
                                grew a stronger 22.1%, compared to 20.5% previously. Nonetheless, despite the
                                moderation, total Islamic core deposits maintained its record high share of banking
                                system core deposits at 17.8% for the second straight month.
                                                                                                                                                                                                                                                                                        (%)
                                  (% Y-o-Y)                                                                                                                    (% Y-o-Y)
                                17.0                                                                                                                                                                                                                                                          18.0
                                                                                                                                                              39.0
                                15.0
                                                                                                                                                                                       Islamic banking
                                                                                                                                                              34.0                                                                                                                            17.0
                                                                                                                                                                                        core deposits
                                13.0
                                                                                              Banking system                                                                                (lhs)
                                                                                                                                                              29.0
                                11.0
                                                                                               core deposits                                                                                                                                                                                  16.0
                                                                                                                                                                                                                           Islamic banking share
                                 9.0
                                                                                                                                                              24.0
                                                                                                                                                                                                                            of total core deposits
                                 7.0
                                                                                                                                                                                                                                                                                              15.0
                                                                                                                                                                                                                                      (rhs)
                                                                                                                                                              19.0
                                 5.0

                                                                                                                                                              14.0                                                                                                                            14.0
                                 3.0
                                                 Oct-06

                                                          Nov-06

                                                                   Dec-06

                                                                            Jan-07

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                                                                                               Mar-07



                                                                                                                 May-07

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                                                                                                                                                                              Oct-06

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                                Table 3: Core Deposits

                                  Growth rate (% y-o-y)                                                                                                          Sept '06                        July '07                            Aug '07                             Sept '07
                                  Banking system (excl Islamic banking)                                                                                               1.9                           12.5                                 9.8                                  9.3
                                  Islamic banking                                                                                                                   15.8                            37.6                               38.8                                 34.1
                                  Muamalat                                                                                                                          69.2                            28.9                               12.4                                   1.7

                                  Muamalat share (%)                                                                                                             Sept '06                        July '07                            Aug '07                             Sept '07
                                  - of total banking system                                                                                                           1.7                             1.6                                1.6                                  1.5
                                  - of Islamic banking                                                                                                              11.4                              9.4                                8.8                                  8.6

                                September statistics scheduled to be released 28 October 2007




                                                                                                                                                                                                                                                                                                     4
Bank Muamalat Malaysia Berhad
ECONOMICS
                                                                                                                                                                                                                                                                                                                            November 2007
 INDUSTRIAL PRODUCTION

 Production slowed in August    The Index for Industrial Production (IIP) slowed to 0.9% y-o-y in August 2007 from
 amidst moderations across      2.1% in July. The slowdown was due to moderations that emerged across the board.
 the board                      Primary IIP component, the manufacturing sector growth deteriorated to 0.8%,
                                following gains of 1.7% in July, while the mining and electricity sectors eased to 0.2%
                                and 2.6% from gains of 3.3% and 3.8%, respectively in July.
                                 (% Y-o-Y)                                                                                                                                                             (% Y-o-Y)
                                11.0                                                                                                                                                                   17.0
                                                                                           Manufacturing Index
                                 9.0
                                                                                                                                                                                                       12.0
                                                                                                                                                                                                                                                                       Electricity Index
                                 7.0
                                                                                                                                                                                                         7.0
                                 5.0

                                                                                                                                                                   IPI
                                 3.0                                                                                                                                                                     2.0
                                 1.0
                                                                                                                                                                                                                                                                                                                                                           Mining Index
                                                                                                                                                                                                        (3.0)
                                (1.0)

                                (3.0)                                                                                                                                                                   (8.0)




                                                                                                                                                                                                                                              Oct-06

                                                                                                                                                                                                                                                            Nov-06

                                                                                                                                                                                                                                                                          Dec-06

                                                                                                                                                                                                                                                                                            Jan-07

                                                                                                                                                                                                                                                                                                              Feb-07

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                                                                                                                                                                                                                                                                                                                                                                     ay-07

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                                                                                                                                            Apr-07




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                                                                                                                                                                                                                                                                                                                                M



                                                                                                                                                                                                                                                                                                                                                                    M
                                Manufacturing production was dragged lower by subdued performance in both the
                                domestic-oriented as well as the export-oriented industries. The slower momentum
                                was despite a steadier production of semiconductors, the largest of E&E components,
                                which accelerated to 7.0% y-o-y in August following July’s increase of 4.6%,
                                appearing in line with the recent up-tick in the global semiconductor cycle. Other E&E
                                components, however, remained sluggish, such as those producing television and
                                radio transmitters and apparatus, which declined further by 21.8%, after contracting
                                by 7.1% in July. Production in television and radio receivers was also down a further
                                9.2%, following a contraction of 5.8% in July. Other industries that contributed to the
                                manufacturing slowdown includes refined petroleum products, which grew a mere
                                0.3% y-o-y due to lower sales, after gaining 3.4% in July and chemical products,
                                which fell by 8.7% after eight months of positive growth.
                                 (% Y-o-Y)                                                                                                                                                               (% Y-o-Y)
                                                                                                                                                                                                      25.0
                                15.0
                                                                                                  E&E Index                                                                                                              Refined Petroleum
                                                                                                                                                                                                      20.0
                                                                                                                                                                                                                          Products Index
                                10.0
                                                                                                                                                                                                      15.0

                                                                                                                                                                                                      10.0
                                 5.0                                                                                           Manufacturing
                                                                                                                                                                                                        5.0
                                                                                                                                  Index
                                 0.0                                                                                                                                                                    0.0
                                                                                                                                                                                                                                                                                                     Chemical Products
                                                                                                                                                                                                       (5.0)
                                                                                                                                                                                                                                                                                                          Index
                                (5.0)
                                                                                                                                                                                                      (10.0)
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                                                                                                                                                                                                                                                                                                                                         Apr-07




                                                                                                                                                                                                                                                                                                                                                                                                                 Aug-07

                                On a monthly basis, the IIP fell 0.2% in August, after gaining 1.7% in July. The decline
                                was a result of contractions in both the mining and electricity sectors by 2.8% and
                                1.0%, respectively, as well as a slowdown in the manufacturing sector, which eased
                                to 0.6% from a 1% growth in July.
                                The manufacturing slowdown was mainly due to a decline in the E&E sector which
                                slipped back into the red by 1.9% m-o-m after recovering strongly the previous month,
                                soaring 12.1% following three consecutive months of declines. Semiconductor
                                production had eased to 4.3% from last month’s growth of 10.7%. Output of office and
                                accounting machines also declined further by 3.7% after contracting by 0.6% in July.
                                Refined petroleum products also retreated a further 1.8% compared to July’s decline
                                of 1.1%, while chemical products decline accelerated to 7.4% from 3.3% previously.
                                YTD, the IIP has increased by a meager 1.2% y-o-y, far below the 5.4% growth rate
                                realised during the same period last year. This was mainly due to the slowdown in the
                                manufacturing sector which had only risen 0.7% in the first eight months of the year,
                                as opposed to a growth rate of 8.6% in 2006. Electricity output had also moderated to
                                3.9% during the same time, while it had grown by 4.6% in 2006. Mining output
                                however, was stronger, up by 2.4% in 2007 compared to a contraction of 4.9% 2006.




                                                                                                                                                                                                                                                                                                                                                                                                                                   5
Bank Muamalat Malaysia Berhad
ECONOMICS
                                                                                                                                                                                                         November 2007


                                 Weak manufacturing production in both July and August point to sustained
                                 sluggishness for the third quarter of the year. With the manufacturing sector
                                 accounting for as much as a third of total GDP, a more subdued GDP performance
                                 for 2007 compared to 2006 is becoming more likely as the year draws to a close.
                                  (% Y-o-Y)                                                                                    (% Y-o-Y)       (% Y-o-Y)

                                12.0                                                                                                    6.5   16.0
                                                                                                  GDP (rhs)
                                                                                                                                              14.0
                                10.0                                                                                                    6.0

                                                                                                                                                            Aggregate
                                                                                                                                              12.0
                                 8.0                                                                                                    5.5
                                                                                                                                                             Demand
                                                                                                                                              10.0
                                 6.0                                                                                                    5.0
                                                                               Manufacturing                                                   8.0
                                                                                Index (lhs)
                                 4.0                                                                                                    4.5
                                                                                                                                               6.0
                                                                                                                                                                                                  Gross Fixed
                                 2.0                                                                                                    4.0                                                     Capital Formation
                                                                                                                                               4.0

                                 0.0                                                                                                    3.5    2.0
                                       Q3 04

                                               Q4 04

                                                       Q1 05

                                                               Q2 05

                                                                       Q3 05

                                                                               Q4 05

                                                                                       Q1 06

                                                                                               Q2 06

                                                                                                       Q3 06

                                                                                                               Q4 06

                                                                                                                       Q1 07

                                                                                                                                Q2 07




                                                                                                                                                     Q304

                                                                                                                                                             Q404

                                                                                                                                                                    Q105

                                                                                                                                                                           Q205

                                                                                                                                                                                  Q305

                                                                                                                                                                                         Q405

                                                                                                                                                                                                Q106

                                                                                                                                                                                                       Q206

                                                                                                                                                                                                              Q306

                                                                                                                                                                                                                     Q406

                                                                                                                                                                                                                            Q107

                                                                                                                                                                                                                                   Q207
                                 On the external front, global conditions have also not fared much better as the OECD
                                 composite leading indicator’s (CLI) annualised six-month rate of change had pulled
                                 back in both July and August. More recently, US manufacturing activities had also
                                 seen an easing in September, with the US Institute of Supply Management’s (ISM)
                                 Purchasing Manager’s Index (PMI) at 52.0%, slightly below the August reading of
                                 52.9%. Other downside risks to global economic growth have yet to subside as the
                                 US subprime mortgage woes persist and oil prices continue to hover at record levels.
                                 As such, we maintain our forecast of a GDP growth of 5.8% for 2007, slightly slower
                                 than last year’s performance of 5.9%, despite the Government’s expectations of
                                 stronger growth at 6.0%. We do however, expect conditions to improve slightly in
                                 2008, as domestic conditions may continue to insulate Malaysia from worsening
                                 global conditions. The recent launching of several economic corridors is expected to
                                 stimulate domestic demand and aid a number of industries particularly, the
                                 construction industry, including those involved in the manufacturing of construction-
                                 related products. This should in turn cushion business and consumer sentiments
                                 come 2008. On the whole, we expect GDP to improve to 6.0% in 2008, stronger than
                                 the 5.8% estimated for 2007.
                                 September statistics scheduled to be released 7 November 2007




                                                                                                                                                                                                                                          6
Bank Muamalat Malaysia Berhad
Msia Economics Monthly - 0711
Msia Economics Monthly - 0711
Msia Economics Monthly - 0711
Msia Economics Monthly - 0711
Msia Economics Monthly - 0711
Msia Economics Monthly - 0711
Msia Economics Monthly - 0711
Msia Economics Monthly - 0711
Msia Economics Monthly - 0711
Msia Economics Monthly - 0711
Msia Economics Monthly - 0711

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Msia Economics Monthly - 0711

  • 1. ECONOMICS November 2007 Bank Muamalat Malaysia Berhad MONTHLY ECONOMIC UPDATE Banking System Loans growth accelerated to 19-month high in September 2007 Industrial Production Production slowed amidst moderations across the board in August 2007 External Trade Exports steadier albeit marginally in August 2007 Consumer Prices Inflation eased slightly in September 2007 External Reserves Reserves higher as at 1H October 2007 Leading Indicators Leading Index eased in August 2007 Primary Indicators Bank & Industry Economics Illustrated Recent Trends in Residential Property Stocks and Sales FOR INTERNAL CIRCULATION ONLY [07/10/21] Refer to important disclosures at the end of this report. Bank Muamalat Malaysia Berhad
  • 2. ECONOMICS November 2007 BANKING SYSTEM Loans growth accelerated to Outstanding loans for the total banking system grew by 9.5% y-o-y in September 19-month high in September 2007, its sharpest rise in 19 months, buoyed by expansions in both the business and household loans. Business loans growth accelerated to 14.8% from a year ago, after growing by 12.8% in August, while household loans grew by 7.3% following a growth of 7.2% the previous month. Higher loans growth were recorded by most business segments, most notable was seen in the transport and communications sector, which registered its third consecutive triple-digit gain, growing by 182.2% y-o-y in the month under review. Manufacturing sector loans, which accounts for nearly 25% of total business loans, however, saw a slight easing, down to 9.0% from 9.2% in August. Meanwhile, outstanding credit for SMEs on the whole, accelerated to 7.0% in September, from a growth of 5.9% the previous month. Mixed results were achieved by the main household loans groups, as mortgage loans accelerated to 7.5% y-o-y from 7.3% in August while passenger car loans growth narrowed to 2.8% from 3.1% previously. Consumption credit, however, rose 16.6% after slipping to 16.5% the previous month. (% Y-o-Y) (% Y-o-Y) (% Y-o-Y) 16.0 12.0 9.5 14.0 11.0 8.5 12.0 Household loans (rhs) 10.0 10.0 Banking system Business loans 7.5 outstanding loans 8.0 9.0 (lhs) 6.0 6.5 8.0 4.0 2.0 7.0 5.5 Oct-06 Nov-06 Dec-06 Jan-07 Feb-07 Mar-07 May-07 Jun-07 Jul-07 Oct-06 Nov-06 Dec-06 Jan-07 Feb-07 Mar-07 May-07 Jun-07 Jul-07 Sep-06 Sep-07 Sep-06 Sep-07 Apr-07 Aug-07 Apr-07 Aug-07 Islamic financing made Islamic financing growth outpaced total loans growth in September 2007, rising by stronger gains 10.2% from a year ago, after bottoming at 9.1% in July. Still, it remains below the 13.8% growth rate realised a year ago. Most financing sectors experienced stronger growth rates. Household credit, which accounted for 62.7% of total financing, grew by 8.2% y-o-y in September, stronger than the previous month’s growth of 7.8%. Financing for passenger cars, grew marginally stronger to 6.5%, compared to 6.4% in August. There was however, a slight pull back in outstanding financing for residential property, which grew by 4.8% in September from 4.9% in August. Share of businesses financing had also been making steady gains over the past eighteen months. The second largest portion of total Islamic financing after automobile financing (in terms of purpose), was taken up by working capital, which grew by 41.6% in September from a growth of 38.9% in August. Islamic financing share of total banking system loans, however, stagnated to 13.1% for a second month, after falling to an eleven month low of 13.0% in July. Total outstanding Islamic financing was RM84.8 billion at end-September 2007. (% Y-o-Y) 14.0 (% ) 13.3 13.0 Islamic banking 13.2 12.0 outstanding financing Islamic financing share 11.0 of total loans 13.1 10.0 13.0 9.0 Oct-06 Nov-06 Dec-06 Jan-07 Feb-07 Mar-07 May-07 Jun-07 Jul-07 Sep-06 Sep-07 Apr-07 Aug-07 Oct-06 Nov-06 Dec-06 Jan-07 Feb-07 Mar-07 May-07 Jun-07 Jul-07 Sep-06 Sep-07 Apr-07 Aug-07 2 Bank Muamalat Malaysia Berhad
  • 3. ECONOMICS November 2007 Table 1: Financing Growth rate (% y-o-y) Sept '06 July '07 Aug '07 Sept '07 Banking system (excl Islamic banking) 6.6 8.0 8.5 9.4 Islamic banking 13.8 9.1 9.5 10.2 Muamalat 33.4 23.7 26.1 23.2 Muamalat share (%) Sept '06 July '07 Aug '07 Sept '07 - of total banking system 0.9 1.0 1.0 1.0 - of Islamic banking 6.8 7.1 7.2 7.2 Credit applications surged again Credit applications continued to surge, rising by 58.3% y-o-y in September, up from the previous month’s gain of 52.5%. The robust trend was fuelled by soaring credit applications from the business sector, which had accelerated to 70.9%, compared to an increase of 51.7% last month. SME applications however, eased to 34.1% from a growth of 47.8% in August. Household applications slipped to 43.7% after growing by 53.7% previously. (% Y-o-Y) (% Y-o-Y) 120.0 80.0 90.0 Banking system 60.0 Business applications loan applications 60.0 40.0 30.0 20.0 Household applications 0.0 0.0 (30.0) (20.0) Oct-06 Nov-06 Dec-06 Jan-07 Feb-07 Mar-07 May-07 Jun-07 Jul-07 Oct-06 Nov-06 Dec-06 Jan-07 Feb-07 Mar-07 May-07 Jun-07 Jul-07 Sep-06 Sep-07 Sep-06 Sep-07 Apr-07 Aug-07 Apr-07 Aug-07 Business and household In contrast, loan approvals in September moderated, slowing to 45.2% y-o-y from approvals ease further 54.5% the previous month as both business and household sectors experienced moderations in credit approvals. Businesses approvals eased to 61.4% y-o-y from 71.8% in August, although there was higher approvals growth for SMEs which was up by 54.0%, compared to 30.0% previously. Household approvals was also slower, easing to 28.6%, after growing by 39.1% in August. Among the segments which experienced contractions in loan approvals were those for the purchase of residential property and consumption credit, which eased to 17.6% and 10.1% respectively, from 19.6% and 10.3% the previous month. Loans for purchase of securities slowed further to 50.2% after expanding by 151.8% in August and peaking at 735.2% in July. (% Y-o-Y) (% Y-o-Y) (% Y-o-Y) 100.0 175.0 60.0 150.0 80.0 40.0 Business approvals 125.0 (lhs) Banking system 60.0 100.0 20.0 loan approvals 40.0 75.0 Household 0.0 50.0 20.0 approvals (rhs) 25.0 (20.0) 0.0 0.0 (25.0) (40.0) (20.0) Oct-06 Nov-06 Dec-06 Jan-07 Feb-07 Mar-07 May-07 Jun-07 Jul-07 O c t-06 J an-07 J un-07 N ov -06 D ec -06 F eb-07 Mar-07 M ay -07 J ul-07 Sep-06 Sep-07 Sep-06 Sep-07 Apr-07 Aug-07 Apr-07 Aug-07 Disbursements climbed back up Loan disbursements growth regained its momentum in September, rebounding 18.0% y-o-y after easing to 15.2% in August, mainly due to higher allocation to the business sector. Disbursements to businesses was up by 19.9% from a previous increase of 11.4%, as SMEs received 9.3% more from a year ago, stronger than last month’s growth of 5.3%. Meanwhile, disbursements to households moderated further to 13.7%, after gaining 24.6% in August. 3 Bank Muamalat Malaysia Berhad
  • 4. ECONOMICS November 2007 Asset quality improved to Asset quality strengthened to a fresh new low. Net non-performing loans (NPL) for new record low yet again the entire banking system gauged on a three-month basis improved to 3.5% of net total loans in September from 3.6% in August. Table 2: NPF Ratios Gross NPF Ratio (%) Sept '06 July '07 Aug '07 Sept '07 Banking system (3 mth) 8.9 7.4 7.2 6.9 Banking system (6 mth) 7.6 6.4 6.2 6.0 Muamalat* 7.2 9.2 9.2 9.1 Net NPF Ratio (%) Sept '06 July '07 Aug '07 Sept '07 Banking system (3 mth) 5.1 3.8 3.6 3.5 Banking system (6 mth) 4.0 3.0 2.9 2.8 Muamalat* 4.3 6.1 6.0 5.7 •Note: 3 month basis effective 2007 Core deposits growth slowed Banking system core deposits moderated for the second straight month, easing to for second month 13.0% y-o-y, from 14.0% in the month under review. This was due to lower placements in fixed and savings deposits which only grew by 11.0% and 11.9% this month, compared to 12.8% and 12.2% in August. Demand deposits growth, meanwhile, grew a stronger 21.0% from 19.6% previously. Islamic banking core deposits similarly softened, increasing 34.1% y-o-y compared to a growth of 38.8% in August on reduced placements in investment and demand deposits. Investment deposits, which account for nearly 65% of total core deposits, grew a slower 44.8% compared to 49.3% in August, while demand deposits increased by only 15.4% in September, compared to 22.6% previously. Further core deposits slowdown was however mitigated by a rise in savings deposits which grew a stronger 22.1%, compared to 20.5% previously. Nonetheless, despite the moderation, total Islamic core deposits maintained its record high share of banking system core deposits at 17.8% for the second straight month. (%) (% Y-o-Y) (% Y-o-Y) 17.0 18.0 39.0 15.0 Islamic banking 34.0 17.0 core deposits 13.0 Banking system (lhs) 29.0 11.0 core deposits 16.0 Islamic banking share 9.0 24.0 of total core deposits 7.0 15.0 (rhs) 19.0 5.0 14.0 14.0 3.0 Oct-06 Nov-06 Dec-06 Jan-07 Feb-07 Mar-07 May-07 Jun-07 Jul-07 Oct-06 Nov-06 Dec-06 Jan-07 Feb-07 Mar-07 May-07 Jun-07 Jul-07 Sep-06 Sep-07 Sep-06 Sep-07 Apr-07 Aug-07 Apr-07 Aug-07 Table 3: Core Deposits Growth rate (% y-o-y) Sept '06 July '07 Aug '07 Sept '07 Banking system (excl Islamic banking) 1.9 12.5 9.8 9.3 Islamic banking 15.8 37.6 38.8 34.1 Muamalat 69.2 28.9 12.4 1.7 Muamalat share (%) Sept '06 July '07 Aug '07 Sept '07 - of total banking system 1.7 1.6 1.6 1.5 - of Islamic banking 11.4 9.4 8.8 8.6 September statistics scheduled to be released 28 October 2007 4 Bank Muamalat Malaysia Berhad
  • 5. ECONOMICS November 2007 INDUSTRIAL PRODUCTION Production slowed in August The Index for Industrial Production (IIP) slowed to 0.9% y-o-y in August 2007 from amidst moderations across 2.1% in July. The slowdown was due to moderations that emerged across the board. the board Primary IIP component, the manufacturing sector growth deteriorated to 0.8%, following gains of 1.7% in July, while the mining and electricity sectors eased to 0.2% and 2.6% from gains of 3.3% and 3.8%, respectively in July. (% Y-o-Y) (% Y-o-Y) 11.0 17.0 Manufacturing Index 9.0 12.0 Electricity Index 7.0 7.0 5.0 IPI 3.0 2.0 1.0 Mining Index (3.0) (1.0) (3.0) (8.0) Oct-06 Nov-06 Dec-06 Jan-07 Feb-07 ar-07 ay-07 Jun-07 Jul-07 Sep-06 Oct-06 Nov-06 Dec-06 Jan-07 Feb-07 Mar-07 May-07 Jun-07 Jul-07 Aug-06 Apr-07 Aug-07 Sep-06 Aug-06 Apr-07 Aug-07 M M Manufacturing production was dragged lower by subdued performance in both the domestic-oriented as well as the export-oriented industries. The slower momentum was despite a steadier production of semiconductors, the largest of E&E components, which accelerated to 7.0% y-o-y in August following July’s increase of 4.6%, appearing in line with the recent up-tick in the global semiconductor cycle. Other E&E components, however, remained sluggish, such as those producing television and radio transmitters and apparatus, which declined further by 21.8%, after contracting by 7.1% in July. Production in television and radio receivers was also down a further 9.2%, following a contraction of 5.8% in July. Other industries that contributed to the manufacturing slowdown includes refined petroleum products, which grew a mere 0.3% y-o-y due to lower sales, after gaining 3.4% in July and chemical products, which fell by 8.7% after eight months of positive growth. (% Y-o-Y) (% Y-o-Y) 25.0 15.0 E&E Index Refined Petroleum 20.0 Products Index 10.0 15.0 10.0 5.0 Manufacturing 5.0 Index 0.0 0.0 Chemical Products (5.0) Index (5.0) (10.0) N o v-0 6 Ja n -0 7 M a r-0 7 M a y-0 7 Ju n -0 7 Ju l-0 7 Au g -0 6 Se p -0 6 O ct-0 6 D e c-0 6 F e b -0 7 Ap r-0 7 Au g -0 7 Oct-06 Nov-06 Dec-06 Jan-07 Feb-07 Mar-07 May-07 Jun-07 Jul-07 Sep-06 Aug-06 Apr-07 Aug-07 On a monthly basis, the IIP fell 0.2% in August, after gaining 1.7% in July. The decline was a result of contractions in both the mining and electricity sectors by 2.8% and 1.0%, respectively, as well as a slowdown in the manufacturing sector, which eased to 0.6% from a 1% growth in July. The manufacturing slowdown was mainly due to a decline in the E&E sector which slipped back into the red by 1.9% m-o-m after recovering strongly the previous month, soaring 12.1% following three consecutive months of declines. Semiconductor production had eased to 4.3% from last month’s growth of 10.7%. Output of office and accounting machines also declined further by 3.7% after contracting by 0.6% in July. Refined petroleum products also retreated a further 1.8% compared to July’s decline of 1.1%, while chemical products decline accelerated to 7.4% from 3.3% previously. YTD, the IIP has increased by a meager 1.2% y-o-y, far below the 5.4% growth rate realised during the same period last year. This was mainly due to the slowdown in the manufacturing sector which had only risen 0.7% in the first eight months of the year, as opposed to a growth rate of 8.6% in 2006. Electricity output had also moderated to 3.9% during the same time, while it had grown by 4.6% in 2006. Mining output however, was stronger, up by 2.4% in 2007 compared to a contraction of 4.9% 2006. 5 Bank Muamalat Malaysia Berhad
  • 6. ECONOMICS November 2007 Weak manufacturing production in both July and August point to sustained sluggishness for the third quarter of the year. With the manufacturing sector accounting for as much as a third of total GDP, a more subdued GDP performance for 2007 compared to 2006 is becoming more likely as the year draws to a close. (% Y-o-Y) (% Y-o-Y) (% Y-o-Y) 12.0 6.5 16.0 GDP (rhs) 14.0 10.0 6.0 Aggregate 12.0 8.0 5.5 Demand 10.0 6.0 5.0 Manufacturing 8.0 Index (lhs) 4.0 4.5 6.0 Gross Fixed 2.0 4.0 Capital Formation 4.0 0.0 3.5 2.0 Q3 04 Q4 04 Q1 05 Q2 05 Q3 05 Q4 05 Q1 06 Q2 06 Q3 06 Q4 06 Q1 07 Q2 07 Q304 Q404 Q105 Q205 Q305 Q405 Q106 Q206 Q306 Q406 Q107 Q207 On the external front, global conditions have also not fared much better as the OECD composite leading indicator’s (CLI) annualised six-month rate of change had pulled back in both July and August. More recently, US manufacturing activities had also seen an easing in September, with the US Institute of Supply Management’s (ISM) Purchasing Manager’s Index (PMI) at 52.0%, slightly below the August reading of 52.9%. Other downside risks to global economic growth have yet to subside as the US subprime mortgage woes persist and oil prices continue to hover at record levels. As such, we maintain our forecast of a GDP growth of 5.8% for 2007, slightly slower than last year’s performance of 5.9%, despite the Government’s expectations of stronger growth at 6.0%. We do however, expect conditions to improve slightly in 2008, as domestic conditions may continue to insulate Malaysia from worsening global conditions. The recent launching of several economic corridors is expected to stimulate domestic demand and aid a number of industries particularly, the construction industry, including those involved in the manufacturing of construction- related products. This should in turn cushion business and consumer sentiments come 2008. On the whole, we expect GDP to improve to 6.0% in 2008, stronger than the 5.8% estimated for 2007. September statistics scheduled to be released 7 November 2007 6 Bank Muamalat Malaysia Berhad