Credit growth accelerates to 4% in April despite a flat month

NBK MONEY MARKET REPORT

KUWAIT: Growth rose to 4.0 percent year-onyear, with the month seeing net lending down a small KD 14 million. The poor monthly showing was mostly due to the regular start-of-quarter drop in loans for the purchase of securities. Growth in the “productive” business sectors remained strong. Private deposits saw a noticeable drop in April on the heels of a strong March. Bank liquidity was lower as the government continued to tap domestic debt markets; interest rates moved higher.

Household lending strong in April

The sector saw a gain of KD 74 million, with growth improving to 6.9 percent. The monthly gain was slightly better than the KD 61 million averaged during the last 12 months. Growth came from installment loans, which grew by 8.2 percent.

Business credit declines

The weakness came largely from a drop of KD 216 million in loans for the purchase of securities; the decline fits a pattern seen at the start of every quarter: a decline that usually reverses a similar increase the month before. Otherwise, business credit was not particularly strong; the industrial and real estate sectors were the only ones to see much of a gain. Meanwhile, oil & gas saw a small decline. Business credit excluding real estate and securities lending accelerated to a robust 10.9 percent after averaging 10 percent growth in 2016.The oil and gas and construction sectors have been the two largest sources of this growth so far this year.

Private deposits fall

Private deposits fell by KD 337 million. Declines were seen in sight, foreign currency and time deposits, while savings deposits rose. Government deposits also fell by KD 145 million in April, with growth slowing to 4.9 percent, its slowest pace in 19 months. Despite the draw downs, money supply (M2) growth remained steady in April at 0.9 percent; M1 growth, however, was affected by the outflow, contracting by 1.3 percent.

Banking system liquidity drop

Bank reserves (cash, deposits with the CBK and CBK bonds) lost KD 350million to reach KD 4.8 billion or 7.9 percent of total bank assets. This coincided with the government increasing domestic bond issuance during April in an effort to finance part of the deficit. Outstanding domestic public debt instruments (PDIs) rose by KD 300 million during April to KD 4.117 billion, to an estimated 12 percent of GDP.

Interest rates hike

The 3-month and 6-monthinterbank rates were up 12 basis points and 7 basis points, respectively. Interbank rates have been mostly steady since. Customer deposit rates were also up, with rates on all maturities higher by10-16 basis points.