Kuwait credit growth jumps to 8.1 pct y/y in June – Large gains in lending for purchase of securities

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June saw credit growth register a strong uptick, coming in at 8.1% year-on-year (y/y) on its largest monthly gain in six months. Total credit rose by KD 754 million during the month. Healthy gains in lending for the purchase of securities and business credit, notably credit to the oil & gas and industry sectors, were behind the strong performance. Meanwhile, household debt saw its smallest gain in five years. Private deposits were down on the month, but were more than offset by a sizeable increase in government deposits.

Household lending added a net of KD 21 million, its weakest gain in five years. The weakness coincided with the start of the holy month of Ramadan and the summer season. As a result, growth continued to moderate slowing to 10.2% y/y. Growth in installment loans, the main source of household debt growth, moderated to 12.2% y/y, while shorter-tenor consumer loans continued to contract by 2.7% y/y, registering another small monthly decline.

Nonbank financial companies saw a net increase in credit in June. The sector saw its third decent monthly gain this year, adding KD 52 million. The sector is showing signs of ending more than five years of deleveraging, with indebtedness picking up by 3.2% y/y.

All remaining credit increased significantly by KD 681 million, with growth picking up to 7.4% y/y. The June increase was due to large gains in lending for the purchase of securities (very volatile), up KD 288 million, and credit to the oil & gas sector and the industry sector. Trade, construction, and real estate also did relatively well. “Other sectors“ also saw a notable gain of KD 56 million.

Private deposits saw a notable decline in June. Private deposits declined by KD 185 million, with growth in broad M2 money supply slightly edging lower to 1.7% y/y; narrower M1 money supply growth contracted slightly by 0.2%. The declines in private deposits were in KD time deposits and foreign currency deposits, which more than erased gains in KD sight and KD savings.

In June, gains in government deposits offset the decline in private deposits. The KD 395 million increase in government deposits also made up for the drop it recorded last month, which was its largest in over seven years. The healthy gain saw growth in government deposits jump to 25.1% y/y, with their rise over the last twelve months, totaling KD 1.3 billion, largely exceeding that of private deposits, which were up KD 493 million.

Banking system liquidity saw a decrease in June but remains healthy. Bank reserves (i.e. cash, deposits with the CBK and CBK bonds) decreased by KD 585 million. Reserves dropped to KD 6 billion, or 10% of total bank assets. The decrease was in time deposits at the central bank and coincided with a KD 418 million drawdown in CBK foreign reserves, which decreased to KD 9 billion.

Interest rates declined in June for a third consecutive month as domestic liquidity conditions improved. The 3-month Kuwait interbank offered rate (Kibor) dropped 7 basis points (bps) to 1.52% in June. Rates have since been relatively steady. The 3-month Kibor stood at 1.56% in September. Customer deposit rates also appeared to ease, seeing drops of 1-2 bps across some of the various maturities.

By National Bank of Kuwait

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