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Thursday , February 9 2023

Credit growth steady as deposits rebound

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Credit growth saw a relatively moderate gain in February, though growth slipped to 7.5%. Total credit was up by KD 83 million during the month. Most of the gains were in personal facilities and “other sectors”. Some sectors saw notable declines including the real estate sector. Meanwhile, private deposits saw a strong bounce, as interest rates remain steady.

For the third consecutive month, household debt recorded smaller gains than usual in February. Personal facilities excluding loans for the purchase of securities added KD 50 million in net new debt, with growth improving slightly to 12.3% y/y. Installment loan growth slowed to 14.5% y/y, but remained the main source of growth. Consumer loans (car, etc) saw a small decrease on the month and registered a 1.8% decline y/y.

Non-bank financial companies saw a net gain in credit in February of KD 22 million. While the sector remained in deleveraging mode, declining by 4.9% y/y, it continued to indicate a slowing in the pace.

All remaining credit was largely flat in February, with growth slowing to 6.1%, as the sector added a mere KD 11 million. The sector still managed to hold on to an improved pace of growth seen thanks to December’s large increase in credit. Most of the February gains were in “other sectors” which added KD 89 million. Lending for the purchase of securities accounted for another KD 25 million. Meanwhile, the real estate and trade sectors saw notable declines in outstanding credit.

February saw private deposits bounce back following months of decline. Private deposits rose by KD 734 million, pushing up money supply (M2) growth to 2.5% y/y. Narrower money supply (M1) growth remained in negative territory, shrinking by 4.1% y/y. Gains in private deposits were largely in KD time deposits, though KD sight deposits also benefited, while foreign currency deposits declined. Private deposits are still down by KD 698 million compared to May 2015.

Government deposits, which have helped offset some of the decline in private sector deposits in recent months, were up in February. Government deposits with domestic banks increased by KD 109 million during the month, and were up by KD 817 million since July 2015; their ratio to total bank assets has risen from 9% in July 2015 to 10% in February.

Banking system liquidity received a boost in February on financial inflows. Bank reserves (which include cash and deposits with the CBK, as well as CBK bonds) rose by KD 515 million to KD 5.6 billion or 9.5%% of total bank assets. The main boost appeared to come from financial inflows, as CBK foreign reserves rose by KD 495 million to KD 8.4 billion.

February had seen dinar interest rates steady. The 3-month Kuwait interbank offered rate (Kibor) stood steady at 1.75% in February, unchanged from January, and up 70 basis points (bps) since early 2015. Rates have fallen since, recording a drop of 12 bps in March, to settle at 1.63%. Customer deposit rates on dinar time deposits saw a small increase in February, up 2-3 bps.

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