April credit picks up mildly, led by a small advance in the “productive” sectors
NBK’s latest Money Brief stated: April credit got a small boost from loans to the industrial sector. This offset sluggishness in lending to the real estate sector and a drop in personal facilities. Meanwhile, private deposits in foreign currencies fell considerably in April. As a result, money supply (M2) fell KD 293 million (-1.1%) in April, pushing year on year (y/y) growth down to 1.7%.
Million KD, unless otherwise noted
Outstanding credit extended to residents rose KD 47 million m/m (+0.2%) in April, breaking a four month slump that saw credit fall a combined KD 25 million. April’s upturn pushed up y/y growth to 4.5% from 3.9% in March, the first improvement in that rate in ten months.
The bulk of the increase in April came from increasing loans to the industrial sector, up KD 68 million, and unclassified loans, up KD 51 million. Some of this increase in lending could have fallen under the umbrella of the financial stability law.
Meanwhile, personal facilities (excluding loans for the purchase of securities) were flat in April, following a gain of KD 86 million in March. Personal loans for the purchase of securities fell KD 54 million, the fifth consecutive decline. Other sectors were either flat or down slightly.
Year on year growth
Private resident deposits fell KD 314 million in April, due to a KD 383 million drop in foreign currency deposits. Banks had adopted a relaxed attitude towards the building of deposits, which should explain the large drop in y/y deposits growth over the previous months as the system remains comfortably liquid and incoming funds linked to the Zain deal are expected to add further liquidity. However, it is also possible that individuals and businesses have experienced growing aversion in April to holding funds in foreign currencies amid volatile markets.
Meanwhile, interest rates changes were somewhat mixed in April. Average rates offered on 1-month KD private deposits rose 1 basis point in April, while rates on remaining maturities fell between 1 and 3 bps. Rates averaged 1.08%, 1.29%, 1.52%, and 1.77%, for the 1, 3, 6, and 12-month maturities, respectively.
Total bank assets fell KD 40 million in April. Banks’ liquid assets (including net interbank deposits) also fell KD 72 million, reducing its ratio to total assets 20 bps to 11.3%. Despite the drop in liquid assets, banks remained very comfortably liquid as average KIBOR (Kuwait interbank offer rate) remained close to its lows during the month.
Liquid assets to total assets Interbank rates
The NBK report concluded: Since November of last year, the dinar has been gaining steadily vis-à-vis the Euro, reflecting the growing trouble in the Euro Zone. This trend only accelerated since the start of April, leading to an 8% appreciation of the dinar to the Euro by mid May. Meanwhile, the dinar is holding relatively steady against the dollar.