KUWAIT CITY, Feb 21: Money supply M2 increased by KD 46 million in December while the narrower measure of money supply, M1, expanded KD 163 million. Government injections related to government spending throughout 2011 kept the system liquid and put downward pressure on interest rates. In turn, low interest rates drove the shift from term deposits to sight deposits. As a result M1 (shorter-term liquidity) grew 17.9% y/y in 2011 while M2 growth was more subdued at 8.5%. Outstanding credit to residents was up KD 21 million in December. Credit growth remained stagnant in 2011, up 1.6% y/y. The slow growth in bank credit in 2011 was in part due to the aftermath of the financial crisis in particular ailing investment companies that are still reducing debt levels.

Personal facilities, excluding loans for the purchase of securities, were up another strong KD 65 million in December. There was no notable activity outside of personal facilities in December. In 2011, consumer/household lending continued to lead growth and was up a strong 9.5% y/y. During 2011, an already healthy consumer sentiment was bolstered by a large Amiri grant in February (KD 1,000 per citizen) and by various salary increases. Outside of household finance, loans to real estate showed some improvement and grew a decent 4.5% y/y, probably reflecting the pickup in investment real estate sales throughout 2011. Business-related loans were still lagging, up a mere 1%, and still hinge on the government’s development plan and its pace of execution. Non-bank financial institutions and loans for the purchase of securities continue to be a drag on credit and were off 16% and 2% respectively in 2011.

In December, resident deposits were up slightly (+KD 25 million) exclusively in local currency accounts and mostly in sight deposits. Resident deposits were up 8% in 2011 (+KD 2 billion) mostly in shorter term deposits.
Total bank assets were up a notable KD 588 million in December. The increase came mainly in foreign assets but banks’ liquid assets were up as well. In 2011, bank assets reached KD 44 billion, up 6.5% y/y. About half of that increase came from liquid assets, deposits with the Central Bank of Kuwait (CBK), and CBK bonds.
The average rates offered on KD private deposits remained unchanged in December. Interbank rates fell 4 to 7 bps across maturities in 2011 as banks remained awash with liquidity. The 1, 3, 6 and 12-month rates averaged 0.82%, 1.05%, 1.30%, and 1.54%, respectively.
The Kuwaiti dinar, which is tied to a basket of currencies dominated by the US dollar, appreciated by 1% versus the US dollar through 2011. The dinar averaged $3.62 over the year, versus $3.49 in 2010. The dinar’s appreciation against the euro was larger.