Kuwait’s credit growth exceeds expectations – NBK ECONOMIC REPORT

nbk-repKUWAIT: Credit growth exceeded most expectations as it ended 2015 at 8% thanks to a strong December gain. Total credit was up by KD 632 million during the month on large increases in credit to the industrial sector and for the purchase of securities. Most other sectors were unimpressive including household borrowing, which recorded a weaker month than usual. Private deposits saw a healthy bounce following several months of decline. December saw a notable increase in interest rates, with deposit and interbank rates up during the month. Interbank rates continued to rise since.

Household debt saw a smaller gain than usual during December. Personal facilities excluding loans for the purchase of securities gained KD 70 million in December; growth slowed to 12.6 percent y/y. While shorter term consumer loans, used to finance car and other consumer goods purchases, increased slightly, longer tenor installment loans continued to be the sole source of growth, growing by 15.1 percent y/y, down from a month ago.

December was a strong month for business credit, though gains were not broad-based. Business credit, which excludes loans extended to investment companies, rose by a healthy KD 533 million; growth picked up to 6.7 percent y/y, its most rapid pace since September 2014. Gains came largely from the industrial sector and lending for the purchase of securities. Other sectors did not do as well, with real estate, trade and construction all seeing modest declines.

Non-bank financial companies (i.e. investment companies) saw a net gain in credit in December as deleveraging abates further. While the sector remained in deleveraging mode, declining by 4 percent y/y, a gain of KD 29 million helped slow the pace and provided further evidence that the sector may soon be done with a deleveraging phase which followed the financial crisis.

December also saw private deposits bounce back following several months of decline. Private deposits rose by KD 794 million, pushing up money supply (M2) growth to 1.2 percent y/y. Narrower money supply (M1) growth improved as well, but remained in negative territory, at -3.8 percent y/y. The gains in private deposits were across the board in KD time, KD sight and foreign currency deposits.

Government deposits, which have helped offset some of the decline in private sector deposits in recent months, were also up in December. Government deposits with domestic banks rose by KD 131 million during the month and are up by KD 810 million since July 2015; their ratio to total bank assets have risen from 9 percent in July 2015 to 10 percent in December.

System liquidity is still relatively comfortable, though it has come under some pressure recently. Banks’ liquid reserves (which include cash and deposits with the CBK, as well as CBK bonds) were steady at KD 5.0 billion in December 2015, or 8.5 percent of total bank assets, down from 10-11 percent before the summer.

December had seen a notable increase in dinar interest rates as markets anticipated that month’s CBK policy rate hike. The 3-month Kuwait interbank offer rate (Kibor) climbed to 1.62 percent in December, rising by 57 basis points (bps) in 2015. Rates have risen further since, recording a gain of more than 70 bps y/y through January 2016, and rising to 1.75 percent.  Customer deposit rates on dinar time deposits were also up in December, gaining by 9-10 bps, following the CBK discount rate hike.

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