Banks offer special deals for Kuwaiti salary earners

• Banks offer tailored account transfer deals with cash benefits averaging 500 dinars.”

• In a bid to enhance operational performance, loan officers across all banks have started paying closer attention to potential new citizen appointments

The profitability of banks in 2024 remains stable and is bolstered by efficiency, although weak growth exposes them to slight pressures.

Credit policy makers in local banks have been eagerly anticipating new appointments for about a month, especially since the end of the moratorium on leadership positions and supervisory positions. This anticipation stems from the possibility of increased demand for consumer and housing loans, albeit slightly. This comes after a relatively weak credit performance of about 1.5% on an annual basis in 2023.

In a bid to enhance operational performance, loan officers across all banks have started paying closer attention to potential new citizen appointments. This follows the announcement by the Civil Service Commission of the nomination of 457 male and female citizens to positions within government agencies. This new pool of candidates has registered with the commission, expressing their desire to work in ministries, agencies, and state institutions.

In this regard, reliable sources disclosed to Al-Rai newspaper that in anticipation of intense competition for the segment of new Kuwaiti recruits, which has emerged as a promising area for credit growth based on current operational data, the majority of banks have introduced special offers for Kuwaiti salary earners.

These offers are tailored for those looking to transfer their accounts, with cash benefits varying from one bank to another, averaging around 500 dinars. Some banks even provide special cash offers for the first 100 customers, at times reaching up to 1,000 dinars. Additionally, these accounts come with special benefits, including cashback rewards.

Loan portfolio

Despite the modest recruitment targets and the desired credit volume in comparison to the consumer and housing loan portfolio, which stands at approximately 18.76 billion dinars, the stability of personal credit since the beginning of this year, without significant changes compared to last year, reflects a continuation of the credit slowdown. This situation necessitates bankers to compete for the segment of new recruits, which has emerged as a beacon for financial growth based on current operational data.

According to data from the Central Bank of Kuwait, total personal credit facilities increased by about 0.284 billion (+1.53 percent) on an annual basis by the end of 2023. However, there was a slight decrease of only about 80 thousand on a monthly basis compared to November. This operating rate is unsatisfactory for banking purposes and puts pressure on the sector’s performance financially, particularly due to weak growth in the business sector credit. Despite this, why are banks keen on new loans to the extent of monitoring new appointments?

Subsidized profits

Initially, sources indicated that banks’ profitability for 2024 will remain stable and supported by strong efficiency. However, weak credit growth exposes them to slight pressures, prompting various operating sectors within banks to seek solutions, particularly regarding consumer loans. This sector accounts for approximately 35 percent of the total loan portfolio and is well protected due to its focus on government employees, who benefit from high job security.

The sources highlighted that this situation is attributed to several factors, with the most notable ones being:

1. With last year’s rise in interest rates, citizens’ demand for new loans significantly decreased, particularly for unnecessary loans, to avoid the high cost, currently at 7.25 percent. Ironically, increasing expectations of potential interest rate cuts prompted borrowers to postpone their financing requests in hopes of obtaining cheaper loans. As a result, both consumer and housing loan portfolios experienced credit weakness.
2. Competition among banks in pricing retail loans to citizens in attractive job sectors decreased due to the “zero interest” policy, which closed the window for attracting new clients from other banks for years. The Central Bank of Kuwait mandates that to qualify for loan rescheduling, the client must have repaid at least 30 percent of their total debt. From a banking perspective, this means that customers undergoing loan restructuring cannot switch to another bank until approximately one-third of their debt has been paid off.
3. Major and medium-sized banks continue to exercise caution by refraining from lending to non-Kuwaitis. Even if legislation permits it, the rates would likely be ineffective. Consequently, this leads to limited access to credit for many customers, whose financing needs have decreased due to the changes in the labor market since the onset of the Covid-19 pandemic, with some individuals considering relocating their families.
4. Recently, banks have been handling Kuwaiti employees eligible for retirement with increased caution, due to the rising pace of retirements in the recent period.
5. The slowdown in real estate loan activity in the past period has impacted loan movement. It’s worth noting that any activity in this sector significantly boosts the demand for individual loans.

First drop in loans in two years

According to statistics from the Central Bank of Kuwait, the total personal loans granted by banks decreased by approximately 18 million dinars (around -0.1 percent) in February compared to January, reaching 18.479 billion. This marks the first decline in these loans in about two years, specifically since January 2021, when they dropped to 17.248 billion dinars from 17.25 billion in December 2020.

The drop in personal loans last month resulted in a decrease in their cumulative increase since the beginning of 2023, particularly during January and February, amounting to 2 million dinars (+0.01 percent). However, their year-on-year increase reached 1.341 billion dinars (+7.82 percent) compared to their level in February of the previous year.

Consumer loans experienced a decline of approximately 5 million dinars (-0.25 percent) last month, reaching 1.961 billion dinars by the end of February, compared to 1.966 billion in January. Additionally, they decreased by 6 million dinars (-0.31 percent) during the first two months of 2023. However, they still saw an increase of 123 million dinars (+6.69 percent) compared to February 2022.

Overall, the total credit facilities extended to residents and non-residents reached approximately 52.696 billion dinars by the end of last February. This represents an increase of 233 million dinars (+0.44 percent) on a monthly basis and 249 million dinars (+0.47 percent) in the first two months of 2023. Additionally, the annual increase amounted to 3.862 billion dinars (+7.91 percent).