Volume 8, Number 20 Monetary Developments
Volume 8, Number 20 Monetary Developments
Yearly growth in credit continues to slow down from January's high … Active policy to discourage speculation on dinar appreciation keep KD interbank rates below dollar rates
In its latest economic brief on monetary developments, National Bank of Kuwait (NBK) reports that credit growth slowed down slightly in April with the reported KD 314 million (+1.5%) increase coming lower than the average monthly increase during 2007 or 2008. As a result, the year-on-year growth in domestic loans continued to slow down for a third consecutive month from a high of 37.3% in January 2008 to reach 32.5% by end April. Meanwhile, the broad money supply measure (M2) expanded by 1.8%, up from 1.0% in March.
Monetary Highlights, April 2008
Million KD, unless otherwise noted
The bulk of the growth in credit during April was in loans to the real estate sector and loans to non-bank financial institutions which rose KD 275 million and KD 110 million, respectively. Personal facilities dropped KD 68 million in April, undoubtedly affected by CBK’s new policies concerning consumer loans, which went into effect at the start of the month.
Amendments to consumer lending regulations stem from CBK’s growing concern over accelerating growth in credit and rising debt burden of consumers. They entailed lowering the mandatory ceiling on the ratio of installments on consumer and installment loans to the net salary or monthly income of a borrower to 40% for those who are currently employed and to 30% for retirees, compared with the 50% ceiling previously applied. CBK also cut the maximum interest margin over the discount rate for these loans down to 3% from 4%, while mandating banks to maintain fixed rates on such loans for the first five years, after which they could be adjusted by no more than +/-2%.
NBK notes that private resident deposits rose KD 326 million in April compared to KD 154 million in March. Growth was in local currency, most of which was in time deposits accounts, whereas foreign currency deposits dropped by KD 61 million. Meanwhile, banks also witnessed a large increase in private non-resident deposits amounting to KD 363 million.
Meanwhile, data published by the CBK on commercial banks’ cost of funds shows a downward trend in average deposit rates -- since the CBK first cut its Repo rate. The weighted interest rate on private deposits fell to 4.85% compared to 5.72% at the end of October of last year when it lasted peaked.
Monetary Indicators, April 2008
Year-on-year percent growth
The foreign assets of the CBK dropped by KD 61 million in April, following a KD 205 million drop in March. Meanwhile, net foreign assets (NFAs) at local banks rose KD 156 million, largely due to the increase in deposits with non-resident banks.
On another note, local banks’ idle funds, namely cash and cash balances, dropped KD 70 million, following a larger decline last month, though banks still hold KD 602 million in idle funds. A drop of KD 150 million in time deposits with CBK partially offset a KD 253 million increase in holdings of treasury bills. In total, liquid reserves (including net inter-local bank deposits) dropped by KD 12 million, pushing domestic liquid assets to total assets ratio slightly down to 9.9%, and reaching one of its lowest levels on record. However, if we include net foreign interbank deposits, the ratio shows a 1.3 percentage points improvement in April, the result of the large increase in local banks’ deposits with non-resident banks.
NBK also notes that Kuwait interbank rates (KIBOR) for all maturities dropped in April, with declines ranging from 9 to 16 bps. Average rates for the 1, 3, 6, and 12-months dropped to 1.58%, 1.83%, 2.06%, and 2.32%, respectively. LIBOR rates rose between 10 bps to 35 bps for different maturities. The spread between KD and USD interbank rates widened to 102 and 91 bps below zero for the 3-month and 6-month placements, respectively. With the exception of one month during the last year, the negative spread on 3-month interbank placements reflects CBK’s active policy aimed at discouraging currency speculators from holding long dinar positions.
Interest Rates, April 2008
Percent per annum
Changes in average customer deposit rates were mixed. The rate on 1-month deposits rose 2 bps to 3.49%, while rates on other maturities fell 3-4 bps, with rates on 3, 6, and 12-month maturities averaging 3.60%, 3.79% and 3.90%, respectively.