The Central Bank of Kuwait has instructed banks to adjust their pricing for individual deposits in dinars by a minimum of one-eighth of a percentage point.
This directive follows the recent decision to raise the discount rate by 0.25 percent. The move aims to enhance the attractiveness of the national currency amidst the growing disparity between the discount rate and the interest on the dollar, which stands at around 1.25 percent, reports Al-Rai daily citing well-informed sources.
Currently, US interest rates fluctuate between 5.25 and 5.5 per cent and effective from July 27, the Central Bank has officially approved the increase of the discount rate from 4 to 4.25 percent.
In accordance with the Central Bank’s instruction, all banks have revised their pricing structure for new customer deposits, incorporating the specified additional percentage based on their individual pricing models. Notably, the interest rates offered to customers vary from one bank to another, influenced by each bank’s liquidity needs.
The technical factors also influence the determination of specific interest rates. Higher rates are directed towards elite or “VIP” clients with substantial deposits ranging from 500 thousand to one million dinars and beyond. These elite clients typically maintain stable deposits for periods exceeding one year, incentivizing competing banks to offer them special rates.
Liquidity ratio requirements also play a role. Some banks have struggled with their liquidity ratios, especially concerning the “LCR” standard in the first half of the year. Others possess surpluses but aim to boost their share of dinar deposits from the individual market as part of their expansion plans for lending activities.
Long-term deposits, extending for a year or more, typically command the highest interest rates. Short-term deposits such as daily or weekly deposits tend to have lower pricing. The Central Bank actively monitors deposit movement and pricing, ensuring compliance with the revised rates.
Sources indicate that there is strong demand from banks for individual deposits, particularly from elite clients. These deposits are considered stable funds that are less likely to be shifted from one bank to another for slightly higher rates. This differs from commercial deposits, which are less stable and more sensitive to rate fluctuations.
Initial deposit rates offered by banks for a one-year period average around 4.25 percent, while one-month deposits receive an interest rate of 3.75 percent, three-month deposits earn 4 percent, and six-month deposits yield 4.125 percent. These rates typically represent the minimum interest offered to customers, with most banks adhering to these initial rates.
In its commitment to the banking sector’s stability, the Central Bank of Kuwait ensures that bank employees are protected from dismissal without proper investigation and justifiable reasons. The bank emphasizes the appointment and promotion of employees based on efficiency standards, fostering satisfaction and justice among workers.
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