KUWAIT: Kuwait’s domestic credit growth was relatively decent 1.1 percent in Q2, resulting in a 2 percent YTD increase (+2.9 percent y/y). However, growth in Q2 was mainly driven by lending to banks/financial institutions (+9.2 percent q/q) and for securities purchase (+2.8 percent), not by business/household lending. Business credit growth, after a solid Q1, weakened to 0.5 percent q/q, pushing the YTD increase to 2.2 percent. Business lending needs to be robust in Q3 for it to finish 2024 at a meaningful increase, given that Q4 is usually the weakest. A faster roll-out of projects and some long-awaited laws, given the new political backdrop, is a tailwind for credit growth going forward.

Within business lending, “construction” remains in the lead, in line with 2022-2023, up 4.4 percent q/q and 12 percent YTD while “trade” is a distant second (+4.8 percent YTD).In contrast, the oil/gas sector remains the main laggard, falling by 6 percent YTD, following a steep 8 percent drop in 2023. The dominant “real estate”, although soft in Q2, is up by 2.3 percent YTD, easily exceeding the 1.3 percent growth seen in full-2023.

After a very weak start for 2024 in terms of project awards, there has been a major pick-up recently, with awards climbing to around KD 1 billion YTD through July, marginally lower than the same period last year, noting that 2023 was strong, witnessing the highest level of awards since 2017. This robust level of awards, if sustained, should eventually support business credit growth. On the other hand, household credit growth, while remaining broadly lackluster (+0.9 percent YTD), picked up to 0.6 percent q/q from 0.3 percent in Q1.

It remains to be seen whether H2 will show a further incremental improvement, similar to last year, when household credit expanded by 1.5 percent in the second half of the year. Meanwhile, we note that credit for non-residents (13 percent of total credit) continued to expand strongly, bringing its YTD increase to a whopping 22 percent, which results in an overall solid credit (domestic plus non-resident) growth of 4.2 percent YTD. Lending to banks/financial institutions accounted for as much as 47 percent of the YTD increase in non-resident credit, “public services” 37 percent, and “other services”15 percent.

Modest recovery in private sector deposits

Driven by a plunge in public-institution deposits (KD 1 billion, -15 percent q/q), resident deposits inched down in Q2, resulting in a 1.2 percent YTD increase (+3 percent y/y). Private-sector deposits (78 percent of total deposits) continued their modest recovery following a weak 2023, growing by 3.1 percent YTD. Government deposits continued to power ahead, up for the sixth straight quarter with YTD growth at 6.9 percent. Within private-sector KD deposits, after a good Q1, CASA lost steam in Q2, although remained slightly positive YTD (+0.5 percent). Time deposits, while still drifting upward (+5.1 percent YTD), continued to exhibit weakening y/y trends with growth falling to around 7 percent from a peak of 26 percent in mid-2023.

Rate cut expectations

Given progress on dis-inflation in the US in Q2 coupled with recent warning signals from the US job market, the current market pricing of cuts in US rates has been pushed again higher to a cumulative 100 bps cut before year-end. A minimum 25 bps cut in September is now assumed with 100 percent probability. While this dynamic will be evolving, any rate cuts by the CBK will be supportive for credit growth, especially household.