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Saturday , September 30 2023

Competition intensifies as Kuwait bankers eye additional ‘high-cost’ deposits

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KUWAIT CITY, Dec 13: Local banks have finally started a new round to attract an additional amount of high-cost deposits, however, to upset the balance of competition for deposits, especially government deposits, which confirms that 2022 will close at unusual historical interest rates locally for about 14 years, reports Al-Rai daily.

In this regard, the daily learned that one of the traditional banks recently won a deposit offered by a government agency for a year at a price of approximately 6 percent, specifically 5.77 percent, while the second highest price came from another agency operating in accordance with Islamic law at 5.65 percent, while it recorded the lowest rate at 4.125 percent.

What is worth noting in this regard is that the price of lending to individuals after the recent increase in the discount rate is 6.5 percent, which means that the margin between loans and the winning price is very narrow, and may not cover the operational cost. The data shows that 10 local banks competed for the government deposit, including a branch of a foreign bank operating in Kuwait, while two Kuwaiti banks, one traditional and the other operating according to Islamic law, were absent from participation.

Seven of the competing banks offered prices that started at 5 percent, leading to the winning price, while 3 banks provided prices of less than 5 percent, which reflects wide interest in the government deposit.

In contrast to the 7 banks, Al-Watani Bank and Kuwait Finance House (KFH) offered the lowest bid prices, with a ceiling ranging between 4.125 and 4.254 percent, while a third offered a price of 4.75 percent. In general, the high demand for this government deposit reflects a wide banking interest in maximizing the liquidity of deposits on which most local banks depend as a main source of financing.

Tradition
Perhaps what attracts more attention is that the value of the deposit is approximately 25 million dinars only, which is a limited amount that the banking tradition did not enjoy fierce competition as it did, as the previous periods witnessed bank competition for high-value government deposits.

The sources stated, “It is correct to say that 2022 is the year of expensive interest, after it recorded successive increases in its prices and in short periods, specifically since last March, by 7 times locally, so that the discount rate jumped from 1.5 percent to 3.5 percent, in addition to a margin of movement for banks with a limit.”

The maximum lending rate for individuals is 3 percent, and 4 percent for companies. Perhaps what distinguishes the current year as well is the appetite of banks that have been open for months to attract additional levels of deposit funds regardless of the high cost, whether flowing from government agencies, companies or individuals, to the extent that some banks have accepted an equal margin of interest for loans and deposits. Thanks to the foregoing, the question is legitimate, why do local banks compete to attract more deposits at a high cost?

In terms of banking, there is more than one reason that decodes the secret of igniting banking competition in this regard, the most prominent of which can be presented in the following:


■ It is well known that at the end of each year, treasury officials in banks seek to beautify liquidity data by strengthening their banks’ positions, which is usual even among managers of investment funds and companies and others that prefer that their closings for the year show the presence of strong financial positions, and if they do not succeed in that, then at least they reflect stability.


■ Although the high prices of deposits narrow the interest margin registered between the loan and deposit portfolios, this does not mean that competing banks face a liquidity problem, as it is known that all local banks have high levels of funds, but the arrangement of the benefits scale sometimes requires acceptance of paying a higher cost.


■ It is no secret to say that the pricing of dollar deposits is one of the banks’ indicators in determining the curve of return on funds in dinars, taking into account that the pricing of dollar deposits recorded a significant increase in the recent period.


■ Bank programs to positively insure deposits differ from one bank to another, and therefore it is noted that their design and implementation differ from one bank to another, but they all converge on the consideration of enhancing customer retention, and not allowing the reverse migration of customers to be due to the high prices offered by other banks.


■ The intense competition for deposits between its engines reflects a strategy that includes betting on signs of good credit growth, and increasing the share of financing major government projects, which requires raising the balance of deposits as a main source of financing.


■ The US Federal Reserve is expected to hold a meeting next Wednesday, during which it is likely to raise interest by half a percent, which increases betting on the possibility of the Central Bank of Kuwait raising discount rates at a later time, albeit at a lower rate, in accordance with its gradual monetary policy regarding determining interest trends locally, and from then the high prices offered on the last government deposit are an early step for rates that will be circulated soon.


■ With regard to the participation of the foreign bank branch in Kuwait, it may seek to cover its credit requirements in local currency in addition to the above or at least the majority of it.

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