Credit growth strong at 7.6 pct in January

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Credit growth contracted in January following a large increase in December, yet growth was still strong at 7.6%. Total credit was down by KD 117 million during the month on declines in credit extended to non-bank financials and for the purchase of securities. Most other sectors were unimpressive including household borrowing, which recorded its second consecutive month of weak growth. Private deposits resumed their decline in January. Meanwhile, a notable increase in interest rates was observed, with deposit and interbank rates up during the month.

Household debt saw another smaller-than-usual gain for a second consecutive month in January. Personal facilities excluding loans for the purchase of securities gained KD 48 million in January; growth slowed to 12.1% y/y. Shorter term consumer loans, used to finance car and other consumer goods purchases, declined on the month, leaving longer tenor installment loans as the sole source of growth, growing by 14.7% y/y, down from 15.1% a month ago.

January was a weak month for business credit, with contractions widespread across the board. Business credit, which excludes loans extended to investment companies, declined by KD 118 million; growth slowed to 6.0% y/y, yet remained higher than its 12-month average of 4.7%. Drops came largely from lending for the purchase of securities. Other sectors did not do as well, with real estate, trade, oil and gas, and construction all seeing modest declines.

Non-bank financial companies (i.e. investment companies) saw a decline in credit of KD 46 million in January. The sector remained in deleveraging mode, yet the pace of decline slowed to 6.5% y/y, lower than its average pace of decline of 7.4% in 2015, and more than half its pace of 16.3% for 2014. This provides further evidence that the sector may soon be done with a deleveraging phase which followed the financial crisis.

Private deposits resumed their decline in January. Private deposits have declined for 6 of the past 8 months. They were down by KD 147 million on the month. Still, money supply (M2) growth picked up to 2.0% y/y on basis effects. Narrower money supply (M1) growth improved as well, but remained in negative territory at -1.9% y/y. The withdrawals in private deposits were across the board in KD sight, KD time and foreign currency deposits.

Government deposits, which have helped offset some of the decline in private sector deposits in recent months, were down in January. Government deposits with domestic banks declined by KD 101 million during the month and were up by KD 708 million since July 2015; their ratio to total bank assets have risen from 9% in July 2015 to 9.9% in January.

System liquidity is still relatively comfortable, though it has come under some pressure recently. Banks’ liquid reserves (which include cash and deposits with the CBK, as well as CBK bonds) were up slightly to KD 5.1 billion in January 2016, or 8.7% of total bank assets, but down from 10-11% before the summer.

January had seen a notable increase in dinar interest rates. The 3-month Kuwait interbank offer rate (Kibor) climbed to 1.75% in January, rising by 70 basis points (bps) since early 2015. Rates have fallen slightly since, recording a drop of 6 bps in February 2016, dropping to 1.69%. Customer deposit rates on dinar time deposits were also up in January, gaining by 17-21 bps.

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