Credit grows by 6.5 pct in Nov – Pvt deposits dips

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KUWAIT CITY, Jan 22: Credit saw a healthy increase in November 2015, with growth slipping only slightly to 6.5% y/y. Total credit rose by KD 189 million during the month, a pace that was slightly ahead of the monthly average during the previous 12 months. Household borrowing remained robust, with November seeing some strength in real estate and securities borrowing. Private deposits continued to see declines, with the drop since May 2015 widening to 6.1% from a year ago. November saw a notable increase in interest rates, with deposit and interbank rates up during the month. Interbank rates continued to rise since.

Household debt continued to see healthy growth during November. Personal facilities excluding loans for the purchase of securities gained KD 107 million in November; growth was steady at 13.1% y/y. While shorter term consumer loans, used to finance car and other consumer goods purchases, were mostly flat, longer tenor installment loans continued to be the sole source of growth, growing by 15.9% y/y.

November was a more modest month for business credit. Business credit, which excludes loans extended to investment companies, rose by KD 93 million, with growth slipping to 4.2% y/y. Gains came largely from real estate and lending for the purchase of securities. Though the trade sector did well, there were weaknesses elsewhere, in industry and construction. Meanwhile, credit to investment companies (or non-bank financials) saw a relatively small decline of KD 6 million. The sectorÕs pace of deleveraging rose to 6.3% y/y in November. It is now less than half its size at its height, back in 2009.

November saw further declines in deposits, with private deposits down by KD 427 million during the month. This pushed money supply (M2) growth into a small decline of 0.8% y/y; narrower money supply (M1) was down a more severe 8.2% y/y due largely to basis effects. Private deposits have declined in five of the last six months, shrinking by 6.1% since May 2015. The decline in private deposits during November was across the board, though foreign currency deposits and KD time deposits took the brunt of it.

Government deposits have helped offset some of the decline in private sector deposits in recent months. Government deposits with domestic banks rose by KD 152 million in November and were up by KD 679 million since July 2015. The ratio of government deposits to bank assets rose from 9% in July 2015 to 10% in November.

System liquidity is still relatively comfortable, though it has come under some pressure recently. BanksÕ liquid reserves (which include cash and deposits with the CBK, as well as CBK bonds) stood at KD 5.0 billion in November 2015, or 8.8% of total bank assets, down from 10-11% before the summer.

November saw a notable increase in dinar interest rates as markets anticipated a late-2015 Fed hike which occurred in December. The 3-month Kuwait interbank offer rate (Kibor) climbed to 1.40% in November, up 36 basis points year-to-date. Rates rose further since, recording a gain of more than 60 bps ytd in 2015, and rising to 1.56%. Customer deposit rates on dinar time deposits also rose in November, gaining by 2-3 bps.

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