Kuwait 2019 credit growth stable at 4.3%

Weaker business and household lending compensated by strong credit to non-bank financial institutions

Report prepared by NBK KUWAIT CITY, Feb 18: Domestic credit growth was broadly stable at 4.3% y/y in December 2019 compared with 4.2% y/y in September 2019 and December 2018. For 2019 as a whole, weaker business lending growth (+4.3% y/y versus +5.1% in 2018) and slower household credit expansion (+5% versus +6% in 2018) were compensated by credit to non-bank financial institutions (+9% in 2019).

Growth in business credit stood at 4.3% in 2019 driven by real estate sector credit, which expanded by 9.3% and accounted for a significant 89% of the total increase in business lending in 2019. In contrast, credit to the trade and the construction sectors were the weakest in 2019, falling by 2.7% and 4.1% respectively.

Household credit expanded by 5% in 2019 as soaring personal consumption loans (+36%) were dampened by a relatively weak growth in housing loans (+2%). Despite its small size (10% of household credit), personal consumption loans accounted for 58% of the total increase in household credit in 2019. Going forward, we expect a slower growth for personal consumption loans compared with the surge recorded in 2019. On the other hand, the 2% growth in housing loans is a multi-year low, compared to an expansion of around 7% and 9% in 2018 and 2017, respectively.

As mentioned before, credit to nonbank financial institutions supported domestic credit growth in 2019 after being a drag in the previous two years (-18% in 2018 and -11% in 2017). In fact, the major pick up for that segment occurred in 4Q2019 when growth surged to 9% q/q, pushing up the y/y expansion to around 9%. In contrast, despite monthly volatility, lending for securities purchase saw its share of total credit drop to below 7% from nearly 10% in 2015, as it remained a drag on credit growth for the fourth consecutive year.

Finally, it is important to note that credit to non-residents expanded by a solid 21% in 2019 (compared with +4% in 2018) to account for around 7% of total credit in the Kuwaiti banking sector by the end of 2019. While we are not clear on the reasons for this jump, perhaps, some of this credit could have been extended to non-resident foreign companies undertaking projects in Kuwait.

Deposit growth weakened further to 0.3% y/y in December (+0.8% y/y in September) on muted private sector deposits, and compared to a 3.2% growth in each of 2018 and 2017 . Private sector deposits remained soft in 4Q2019, resulting in an annual decrease for the first time in many years (-1.7% in 2019). Money supply (M2) dropped by around 1% y/y in 2019. On the other hand, government deposit inflows accelerated in 4Q2019 (+6.4% q/q), pushing up their y/y growth to 11.4%. Despite their much faster growth in 2019, government deposits still accounted for 17% of total resident deposits.

The domestic liquidity situation in the Kuwaiti banking sector seems to have slightly tightened in 2019. This can be seen in an increase in the simple loans-todeposits ratio to 88% in December 2019 from 85% one year before. Furthermore, the excess reserves (above CBK’s minimum required reserve ratio of 18%) have trended downwards in 2019. Given that, some Kuwaiti banks have attracted more deposits from abroad; deposits from nonresidents soared by 55% in 2019 (compared with only +2% in 2018) to represent around 8% of total deposits in the Kuwaiti banking sector, the highest contribution in more than 10 years.