Bank reserves rise to KD 5 bln in Dec – Credit growth slows to 3.2%; money supply growth increases

KUWAIT CITY, Feb 19: Bank credit contracted for the third consecutive month in December, with growth slowing to 3.2% y/y. Outstanding credit declined by KD 65 million, despite the usual end-of-quarter spike in lending for the purchase of securities. Business credit was particularly weak, registering its largest monthly decline in over a year. By contrast, private deposits rose for the second consecutive month, pushing money supply growth to its most rapid pace in 13 months. Meanwhile, interest rates were higher on the month, pricing in the CBK’s repo rate increase.

Business credit (excluding nonbanks and securities lending) dropped by KD 225 million, with growth slowing to 3.4% y/y. The declines were in the industrial, construction, trade and “other” sectors. The only sector to see a noticeable gain was oil & gas, which added KD 52 million and grew by 25% y/y in December. Separately, lending for the purchase of securities rose by KD 100 million: a smaller jump than the usual end-of-quarter increases seen in the past. Meanwhile, the non-bank financial sector saw a small gain.

Household lending saw a moderate gain during the month, with growth steady at 7.3% y/y. The KD 53 million net increase in household debt (personal facilities excluding securities lending) came from a KD 60 million increase in installment loans, which are used primarily for financing a home, while consumer credit shrank during the month. The contraction in consumer loans continued to widen to -4.9% y/y while installment loan growth was steady at 8.8% y/y.

Private deposits rose by KD 383 million in December, on gains in KD time and foreign currency deposits.

Money supply (M2) growth accelerated to 3.8% y/y. Meanwhile, government deposits, which have been weakening over the last year, saw a small KD 51 million gain, with growth at just 0.9% y/y.

The banking system’s liquid reserves edged higher in December. Bank reserves (cash, deposits with the CBK, and CBK bonds) increased by KD 271 million to KD 5 billion or 7.9% of bank assets. This coincided with the absence of public debt issuance in December; in fact, outstanding domestic public debt instruments (PDIs) were steady at KD 4.77 billion, or an estimated 12% of GDP.

Domestic rates were higher in December, pricing in the CBK’s 25 basis point increase in the repo rate. Customer deposit rates were up 8-11 basis points across the board. The average 3-month interbank rate rose one basis point in December to settle at 1.80%. Rates have moved higher since, with the 3-month Kibor now at 1.88%.

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