Credit growth remains modest… Deposits
In its latest economic brief on monetary developments, National Bank of Kuwait (NBK) reports that credit growth remained subdued in August, following on the trend which extends back to 4Q08. On the other hand, private sector deposits from residents dropped for the third consecutive month. However, the drop came at a slower rate than in July, following the end of the seasonal summer holiday withdrawals. Meanwhile, deposits from non-residents rose for the first time in a year. As a result, money supply (M2) fell KD 152 million month-on-month (m/m) in August, well below the KD 548 million decline seen in July.
Monetary Highlights, August 2009
On the monetary policy side, the central bank of Kuwait (CBK) kept its discount and Repo rates unchanged during August. The last discount rate cut was in May (by 50 bps to 3.0%), and credit has seen a weak but stable growth rate since, hovering around 0.5% monthly. Credit facilities are still held back by the ongoing slowdown in economic activity.
NBK noted that credit to residents rose 0.4% m/m, up KD 97 million in August, following a similar 0.5% increase in July. Year-on-year (y/y) growth has slowed to 8.4%, from 15% in January of this year.
August’s advance was mainly driven by personal facilities, up KD 82 million m/m. Around half of this climb came from facilities for the purchase of securities, as the Kuwait stock exchange was better off during August, closing near the 8,000 level. Meanwhile, loans to the real estate sector continue to see positive growth, adding KD 40 million in August. Sectors such as industry and “oil & gas” rebounded from their previous declines, witnessing increases of KD 27 million and KD 21 million, respectively. Other sectors continue to experience m/m drops or flat growth.
Out of the KD 862 million total credit growth seen since the beginning of 2009, loans to the real estate sector amounted to KD 527 million. Installment loans are the only other credit component to witness significant year-to-date (ytd) growth at KD 362 million.
Private resident deposits fell KD 154 million in August (strictly in foreign currency); following the KD 513 million drop in July. However, unlike the previous months, the August decline was strictly due to falling deposits from government and semi-government institutions. As the holiday season ended, withdrawals from residents subsided (which reduced the need for official deposits).
For the first time in a year, deposits from non-residents jumped KD 218 million. By end of July, non-resident deposits had fallen KD 3.5 billion or 80% from August 2008 level. Since then, the government had frequently stepped in to offset the large outflows, depositing KD 1.5 billion with local banks. However, direct government deposits were flat in August. Although it certainly represents a significant jump, the August improvement is not enough to ascertain the start of a new trend.
CBK’s net foreign assets (NFAs) were up KD 36 million in August, following a KD 107 million increase in the previous month. Meanwhile, local banks’ NFAs fell KD 443 million, on the back of a KD 212 million increase in foreign liabilities. Despite the decline, local banks’ NFAs remain up 208% y/y in August.
Liquidity in the banking system seems to be at comfortable levels. Total banks’ liquid assets rose KD 166 million (incl. local net inter-bank deposits) in August, following a KD 163 million increase in July. In an attempt to absorb the excess liquidity, the CBK accepted KD 120 million in time deposits from banks. Average KIBOR rates saw a sizeable decline in August, ranging between 12 and 21 bps, over the different maturities. Meanwhile, the government issued KD 300 million in T-bonds during August to replace a total of KD 330 million in maturing T-bonds and T-bills (KD 280 million and 50 million, respectively).
Since the beginning of August, the CBK kept the dinar/dollar exchange rate within a narrow band. Consequently, the dinar has lost ground vis-à-vis the Euro and has reached a level close to its all-time low of April 2008.
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