Increased real estate activity boosts credit, but growth in general remains subdued
NBK’s latest Money Brief stated: Credit growth in the second quarter picked up relative to the flat start of the year. Nonetheless, the pace of growth on a year on year (y/y) basis continues to slow down in the absence of any sustained stimulus. It is becoming apparent that a broad and sustained recovery is increasingly dependent on public spending and the expeditious launch of planned projects under the recently announced 5-year development plan.
Million KD, unless otherwise noted
Owing to sluggish credit growth, excess liquidity is piling up at banks, despite a drop in deposits and a reduction in holdings of foreign assets as a counterbalance. Meanwhile, the Central Bank of Kuwait (CBK) stepped up efforts during May to absorb excess liquidity at banks by accepting additional time deposits. As a result, money supply (M2) slid 0.3% month on month (m/m), down KD 77 million, while growth fell to 0.3% y/y, and appears to be heading into negative territory.
Outstanding credit to residents rose 0.2% m/m (+KD 59 million) in May, matching the pace seen in April. However, y/y growth continues to slide, falling to 4.4% at the end of May, while the annualized average three months rate remains almost flat.
During May, the bulk of the increase was in loans to the real estate sector, rising KD 69 million, followed by loans to the industrial sector, up KD 28 million. Meanwhile, personal facilities (excluding loans for the purchase of securities) rose a modest KD 9 million, while loans for the purchase of securities fell KD 15 million. Remaining sectors were either flat or down for the month. Note: growth over the past year in other unclassified sectors were reclassified as loans to the construction sector, which adds around KD 100 million to total outstanding loans to the sector.
Year on year growth
Private resident deposits fell 0.3% m/m, down KD 77 million in May, following a KD 104 million drop in foreign currency deposits. Banks have shed almost a third of their foreign currency deposits over the past year, a total drop of KD 1.1 billion. Meanwhile, local currency deposits were up 0.1% m/m or KD 27 million, but have seen a considerable shift towards shorter term deposits. The drop in private deposits was offset by a KD 213 million increase in deposits of the government.
As a result of the comfortable funding levels, interest rates continue to hover around their lows. Average rates offered on 1-month KD private deposits were unchanged in May. Rates averaged 1.08%, 1.27%, 1.50%, and 1.78%, for the 1, 3, 6, and 12-month maturities, respectively.
With limited credit growth, higher government deposits and KD 197 million in capital increases at Burgan and Ahli banks lifted liquid assets (including net interbank deposits) KD 308 million in May. The CBK stepped in to mop up the excess liquidity, accepting KD 306 million in new time deposits from banks. Meanwhile, total bank assets rose KD 211 million m/m.
Liquid assets to total assets Interbank rates
The NBK report concluded: At the start of June, the dinar hit almost a two year high against the Euro but has since leveled off as the Euro’s slump worldwide waned. Meanwhile, lower volatility is observed in the dinar-dollar rate, possibly reflecting the large weight of the dollar in the currency basket against which the dinar is pegged, although the dinar was allowed to slide slightly lower since the start of the year.