Sep 11 2012
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Kuwait Credit Growth Slackens In July; Private Deposits 'Fall'
KUWAIT CITY, Sept 11
Seasonal factors may have been behind a slowdown in credit growth in July and a drop in private deposits. As a result, M2 money supply shrank by over 3% and M1 by more than 7%. Outstanding credit to residents rose by a mere KD 22 million in July on the heels of last month's large jump. Year-on-year (y/y) growth remaining relatively unchanged at 4.6% despite the slowdown.
Personal facilities (excluding loans for the purchase of securities) experienced its largest gain since December 2007, increasing by KD 111 million and pushing growth to 13.8% y/y. This sector, mainly consumer and installment loans, remains the primary driver behind credit growth.
Growth in lending to business activity (excluding personal lending and credit to nonbank financial firms) was lackluster in July as credit saw a drop of KD 28 million. Still, growth in business credit remained positive at 5% y/y, maintaining an overall strengthening trend over last year.
Credit to the construction sector has been particularly weak dropping by 4.3% y/y and 8% from its February 2010 peak of KD 1.81 billion. Declining lending to the construction sector is a reflection of the slow progress in implementing the government's development projects.
Credit to nonbank financial institutions resumed its deleveraging trend with a KD 62 million drop. The sector continues to restrain overall growth having contracted by 19% from a year ago and 10.7% thus far in 2012. This trend is likely to continue in the coming months, especially after a recent decision by the Ministry of Commerce to withdraw the commercial licenses of a number of investments companies that are in breach of regulations.
Private resident deposits continued to decline in July, dropping by a record KD 963 million driven by contractions in both local and foreign currency deposits (KD 607 mn and KD 356 mn, respectively). This is partly due to seasonal factors but may also reflect temporary activity. Accordingly, M1 and M2 have experienced sharp drops (KD 551 mn and KD 973 mn, respectively). Both saw growth against a year ago fall noticeably to 6.8 and 5.4%, respectively.
Banks' liquid reserves declined KD 297 million in July, with the reserve ratio falling to 24.8%. Year-on-year growth in liquid reserves declined to 12.8%. Total bank assets declined by KD 358 million as a result of the decline in liquid assets. Counter rates on KD time deposits continued to decline falling by 3-4 basis points across maturities in July. Rates averaged 0.73%, 1.0%, 1.25%, and 1.56%, for 1, 3, 6 and 12 month maturities, respectively.
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