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Credit growth steady at 3.2 pct in August – Household solid

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KUWAIT CITY, Nov 11: Credit saw a moderate gain in August, though growth continued to slow on basis effects. The month saw a net gain of KD 193 million in credit, as growth eased to 3.2 percent year-on-year (y/y). Most gains came from solid household borrowing and from some business sectors. Private deposits bounced back following a couple of months of decline. Meanwhile, interest rates held steady.

Household lending saw a second consecutive month of strength in August, with growth steady at 7.2 percent y/y. Personal facilities excluding securities lending added a net KD 118 million during the month, double the average monthly gains achieved in the first half of 2017.

Business credit (excluding nonbanks) saw a relatively modest gain in August, as the real estate sector weighed on growth. Credit added a net KD 83 million, with growth slipping to 1.4 percent y/y. Gains were largely limited to construction and “other sectors”, which added KD 81 million and 82 million, respectively. These increases were partly offset by declines in real estate and oil & gas.

Despite apparent weakness in business credit, lending to “productive” business sectors remained relatively robust in August. While growth in this segment, which excludes real estate and financial sector lending, was unimpressive at 4.5 percent y/y, this was largely due to large settlements in 4Q16. By contrast, growth thus far in 2017 averaged an annualized 11 percent. The August gain in this portfolio topped a healthy KD 142 million, which is well above the average monthly gain of KD 99 million registered this year through August.

Private deposits bounced back in August following two months of declines. Deposits rose by KD 240 million on the back of gains in foreign currency deposits and KD time deposits. Some of this was offset by declines in KD sight and KD savings deposits.

This helped push money supply (M2) growth higher to 2.9 percent y/y. Government deposits were flat, with growth slipping to 4.9 percent y/y.

The banking system’s liquid reserves, or “excess liquidity”, edged lower in August to 7.1 percent of bank assets. Bank reserves (cash, deposits with the CBK, and CBK bonds) decreased by KD 247 million to KD 4.4 billion. This coincided with KD 400 million in net issuance of public debt. This increased outstanding domestic public debt instruments (PDIs) to KD 4.57 billion, or an estimated 12 percent of GDP.

Domestic interest rates in August were little changed from July. The 3-month interbank rate edged up 2 basis points to settle at 1.74; rates have slightly adjusted upwards since. Customer deposit rates were unchanged on the month.

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