Kuwait credit growth slows to 5.1% after repayment

Credit contracted in October, coinciding with a large repayment by a Kuwaiti corporate, with growth slowing to 5.1 percent year-on-year (y/y). Credit fell by KD 700 million, with most of the decline coming from lending for securities purchases. Household loans picked up strength on the month, while business credit was mostly weaker. Private and government deposits saw moderate declines in October, though money supply growth accelerated, benefiting from basis effects.

Household lending was strong in October, rising by KD 93 million, with growth steady at 7.0 percent y/y, driven exclusively by installment loans. The gains followed a September in which credit was flat. At 10.6 percent y/y, the annual average growth in household lending was slightly lower than last year’s 12.5 percent y/y, but remained relatively healthy.

Lending to nonbank financial companies saw a healthy net gain and maintained positive growth from a year ago. Sector debt added KD 24 million during the month, with growth picking up to 6.6 percent y/y. The sector appears to have largely completed deleveraging that began in the wake of the 2008 financial crisis.

All remaining credit contracted by KD 817 million, with growth easing to 4.1 percent y/y. The contraction coincided with a single corporate debt repayment of KD 688 million following the recent sale of a large stake in a listed company. A large part of the drop in all remaining credit came from a KD 480 million decrease in lending for the purchase of securities. Other business sectors were mostly down. Decreases were visible in the construction, real estate, trade, industry, and “other” sectors. Meanwhile, there was a notable increase in crude oil & gas.

Private deposits resumed their decline in October, dropping by KD 98 million, though broad M2 money supply growth picked up to 5.0 percent y/y, on basis effects. Growth in the narrower M1 money supply also improved to 4.5 percent y/y. Declines were concentrated in KD sight and foreign currency deposits; this was offset by a strong gain in time deposits. Government deposits also decreased by KD 95 million, but growth remained strong at 20 percent y/y.

Banking system liquidity improved in October, further bolstering its healthy levels. Bank reserves (i.e. cash, deposits with the CBK and CBK bonds) added KD 953 million to reach KD 5.7billion or 9.5 percent of total bank assets. The increase was in both time deposits with the CBK and CBK bonds. This coincided with an increase of a similar magnitude in CBK foreign reserves, pushing them to KD 9billion. Meanwhile, net domestic government debt issuance, which taps bank liquidity, was steady; outstanding public debt instruments (PDIs) rose by KD 200 million during October to KD 2.97 billion.

Interest rates have been relatively steady. The 3month Kuwait interbank offered rate (Kibor) edged lower in October to 1.54 percent and has been declining steadily since (Chart 5).The rate ended 2016 at 1.44 percent, apparently unfazed by the CBK’s 25 bps discount rate hike in December. Meanwhile, customer deposit rates were little changed in October.