Kuwait’s credit growth rebounds as CBK leaves policy unchanged

Lending to businesses rose 5.3% y/y in 2018

KUWAIT: Kuwait’s credit growth rebounded to a 13month high of 4.3 percent in December 2018 from 3.1 percent in 2017. This was supported by stronger lending to both businesses and households, as well as the usual end-of-year jump in lending for the purchase of securities. Growth in deposits edged up to 3.2 percent y/y in December, due mainly to an increase in private deposits by 4.1 percent y/y. As for interest rates, the CBK left its policy rate unchanged after the Fed’s December rate hike, but increased the repo rate by 25 bps.

Despite a slowdown during the 1H18, lending to businesses rose 5.3 percent y/y in 2018, up from 3.3 percent y/y in the previous year. This was driven mainly by a significant improvement in real estate borrowing (4 percent y/y), which more than offset a decline in lending to the trade sector (-1.7 percent y/y). Business confidence was supported by an environment of higher average oil prices in the 2H18, which may have helped restore the appetite for credit, after a large corporate repayment a year earlier.

Household borrowing rose 6.0 percent in December, driven mainly by a robust growth in housing loans (6.8 percent y/y). Meanwhile, growth in consumer loans remained in decline, reaching -2.6 percent y/y, the slowest pace of contraction in more than two years, which could suggest an improvement in this segment’s lending in the coming months. This may be the initial positive impact of the new CBK’s recent loosening of lending restrictions (November 2018), which increase the maximum limits of nonhousing loans to 25 times the salary or a maximum of KD 25,000 (up from 15 times or maximum of KD 15,000).

Regarding non-bank financial firms, the pace of deleveraging continued its decline in 2018 to -19.1 percent y/y from -11.1 percent in 2017.

Private deposits grew by 4.1 percent y/y in 2018 (up from 3.7 percent in 2017) due to the rise in in both sight (2.5 percent y/y) and time deposits (6.4 percent y/y). Meanwhile, government deposits dropped by 1.8 percent y/y, despite a robust rise of 5.3 percent m/m in December after five consecutive months of decline. As such, the money supply (M2) increased by 4 percent y/y.

Commercial lending rates were unchanged compared to last quarter, while deposit and interbank rates increased alongside hikes in the domestic repo rate. The Central Bank of Kuwait forewent an increase in its main policy rate - the discount rate used to price loans - after the US Fed hiked its target rate by 25 bps in December for the fourth time in 2018.

The CBK has skipped three out of the last four US Fed hikes, in order to support non-oil economic activity. In the meantime, the CBK increased by 25 bps its repo-rate in December, and so did commercial banks on their saving deposits, to maintain the attractiveness of the Kuwaiti dinar and stem potential outflows.