KUWAIT: In continuation of the trend seen in late 2024, domestic credit growth was solid in Q1 (+1.6 percent), driving up the y/y increase to 4.4 percent. Growth was mostly driven by business credit, which expanded by 2.6 percent q/q, the fastest quarterly growth in three years while household credit growth was uninspiring.
Given the Fed’s wait-and-see approach, the high-for-longer interest rates remain a damper on credit growth, especially household, but a game changer will be the possible approval ofa housing finance law. Business credit can continue benefiting from the overall improving trend in project awards as seen in 2023-2024 and expected for 2025 despite a relatively soft Q1. However, if the weakness in oil prices (Brent down by around25 percent from a recent high) is sustained, that will be a headwind for credit growth going forward.
Within business lending, YTD growth has been broad-based with ‘trade’ (+5 percent) and ‘other services’ (+2.9 percent) in the lead. The heavyweight real estate sector continued its solid recovery, growing by the fastest quarterly rate in three years while the oil/gas sector displayed some early signs of a recovery after three consecutive annual drops.
On the other hand, ‘construction’, after surging by a CAGR of 16 percent over 2022-2024, has taken a breather in the last two quarters, with y/y growth falling to 5 percent. For project awards, while Q1 was much weaker sequentially, that followed two very strong quarters and is also partly due to seasonality with y/y growth very high, but from a low base. Meanwhile, household credit growth was lackluster, standing at 0.4 percent q/q.
However, we note that in both 2023 and 2024, household credit was much stronger in the second half of the year than in the first half. For example, more than 70 percent of the 2024 growth occurred in the second half. The weakness has been more in loans for consumer durables, which have dropped for four straight months and are down 1.2 percent q/q while housing loans are up 0.6 percent q/q.
Private-sector deposits solid
Resident deposits inched up in Q1 with y/y growth at 2.9 percent. This was driven by private-sector deposits (78 percent of total deposits), which increased by 2 percent q/q (4.3 percent y/y). The weakness in government deposits continued, as they fell for the second straight quarter with y/y growth barely positive after being in double digits for most of the past three years. If the weakness in oil prices sustains, government deposits may come under further pressure.
Within private-sector KD deposits, CASA trends continued to improve, and are up by 2.4 percent YTD, in line with growth in time deposits. We note that non-resident deposits (7 percent of total deposits), after falling for three straight years (down a sharp 22 percent in 2024), made a come-back surging by 22 percent (KD 728 million) q/q. Fed in a wait-and-see mode; high-for-longer interest rates delivers softer-than-hoped boost to credit growth
The Central Bank of Kuwait, unsurprisingly, cut rates (25 bps) by less than the Fed (100 bps) since the start of the easing cycle in September. And while the futures market currently indicates a cumulative 75-100 basis points cut by the Fed by year-end, this looks aggressive to us. Given the high tariff-related uncertainty and the opposing forces on the Fed’s dual mandate, the latter remains in a wait-and-see mode, indicating a high-for-longer outlook for interest rates, and consequently softer-than-hoped support to credit growth.
