KUWAIT: Credit saw a small decrease of KD 22 million in October on the heels of an exceptionally large increase the month before (KD 692 million). Despite the small decline, credit growth still rose to 6.6 percent year-on-year (y/y), the most rapid pace in over a year. A large decline in lending for securities weighed on the October figure. Meanwhile, household borrowing recorded a good gain, while business credit did relatively well. Deposits resumed their month-on-month declines following one positive month in September.
The Central Bank of Kuwait (CBK) increased its key policy rate in December following the much anticipated policy rate hike by the US Federal Reserve. The CBK increased its discount rate by 25 basis points (bps) to 2.25 percent ; the rate had remained unchanged at 2 percent for over three years. The increase will see some bank lending rates rise as a result. Interbank rates have already been rising in anticipation and as bank liquidity came under some pressure. Deposit and interbank rates remained relatively steady during October, though the data did reflect the start of a pickup in interbank rates that continued into December.
Household debt saw an average sized gain in October of KD 107 million, with growth accelerating to 13.1 percent y/y. Installment loans (primarily housing) continued to be the sole source of growth, with growth there accelerating to 16.2 percent. Consumer loans (car, etc.), on the other hand, saw a small decrease in October and registered a 0.2 percent decline y/y.
Non-bank financial companies resumed their net reduction of bank credit, with a decline of KD 27 million. Still, the sector’s pace of deleveraging has been easing, dropping to 5.3 percent y/y in October. It is now less than half its size at its height, back in 2009.
All remaining credit declined by KD 101 million, though growth rose to 4.3 percent y/y thanks to a basis effect. The monthly decline was due to a large KD 189 million drop in lending for the purchase of securities. Other sectors did relatively well, adding around KD 89 million. This came largely from industry, real estate and construction.
Private deposits resumed their decline in October, registering a relatively large drop of KD 776 million. As a result, money supply (M2) growth eased to 3.1 percent y/y, while narrower money supply (M1) remained down by 1.0 percent y/y. Deposits have declined in four of the last five months, with September the only exception. During the period from May through October, deposits shrank by KD 1.7 billion, or 4.8 percent. The decline in deposits during October was largely in KD sight deposits (-KD 323 million) and foreign currency deposits (-KD 407 million).
Government deposits have helped offset some of the decline in private sector deposits in recent months. Government deposits with domestic banks rose by KD 219 million in October and were up by KD 527 million since July 2015. The ratio of government deposits to bank assets rose from 9 percent in July 2015 to 10 percent in October, which is where it stood a year ago.
System liquidity is still relatively comfortable, though it has come under some pressure recently. Banks’ core liquid assets (which include cash and deposits with the CBK, as well as CBK bonds) stood at KD 5.1 billion in October 2015, or 9.0 percent of total bank assets, down from 10-11 percent before the summer.
Dinar interbank rates have been moving upward as liquidity tightened and in anticipation of the Fed hike. The 3-month rate was steady at 1.31 percent in October, though it was up 26 basis points year-to-date. The rate has risen further since, recording a gain of more 60 bps ytd by late December 2015, rising to 1.56 percent.
Customer interest rates on dinar time deposits were relatively steady in October. Average rates on the 1-month, 3-month and 6-month time deposits saw a decline of a basis point each to settle at 0.61 percent, 0.78 percent, and 1.00 percent, while 12-month rates added 12 bps to reach 1.24 percent.
