Further credit slowdown at the end of 2008… Government considering further action to support economy
In its latest economic brief on monetary developments, National Bank of Kuwait (NBK) reports that the year ended on a low note as the financial sector dealt with the ongoing credit crisis. Following continued outflows from the system, money supply (M2) contracted KD 456 million in December, while year-on-year (y-o-y) growth fell to 15.8%, well below the pace set in the previous two years. Sentiment was also soured by continuing slides in the stock market. Meanwhile, investor and consumer uneasy mood was reflected in weak demand for credit, as y-o-y growth hit a three-year low.
Monetary Highlights, December 2008
Million KD, unless otherwise noted
Residents’ private deposits fell KD 437 million in December, mostly from foreign currency accounts. At the same time, customers sought to move their local currency deposits from short-term accounts to longer-term accounts in search for higher returns amid falling deposit rates. In 2008, residents’ deposits grew KD 2.9 billion or 16%, down from the 20% pace of 2007.
Meanwhile, deposits from non-residents fell KD 437 million in December, on top of a KD 1.1 billion drop in the previous three months. Earlier in the year, banks had relied on these funds to fuel growth. At the end of August, deposits from non-resident had risen to 18.1% of total deposits from 15.6% at the start of the year. They fell back to 11.7% at the end of December. These outflows, triggered by the global credit crisis, had put severe pressure on banks’ liquidity and funding in September and October, but have since been eased through government injections.
NBK notes that the government responded to the outflows through a KD 343 million placement with banks in December, bringing the total injected over the fourth quarter to KD 1.3 billion. Meanwhile, the persistent slowdown pushed the government to consider further measures to boost confidence. At the end of January, the rescue team, headed by the governor of the CBK, proposed its plan to stabilize the financial sector. If implemented, the move would be the boldest so far and would complement previous measures by the CBK, most notably the cuts to interest rates and the reduced required reserve ratio. This announcement had an immediate positive impact on the stock market.
Monetary Indicators, December 2008
Year-on-year percent growth
NBK says that during December, credit to residents rose 0.7% (+KD 165 million), falling short of the pace witnessed the previous month. In total, credit expanded 17.5% (+KD 3.5 billion) in 2008, of which KD 2 billion was in the first half of the year. In the second half, growth slowed down with y-o-y growth falling to 17.5% in 2008 versus 34.9% in the previous year.
Personal facilities for the purchase of securities led the increase in credit in December rising 4.0% m-o-m (+KD 108 million). The remaining growth was mostly in loans to the trade sector (+KD 35 million). The makeup of banks’ credit portfolio did not change much over the year. Real estate loans remained at 24% of total loans, while personal facilities dropped to 33% from 35% due to the slowdown in consumer and installment loans growth.
