The process of managing monetary policy globally has become an obsession that haunts many major economies, since the start of the monetary tightening cycle in March 2022, the economic and geopolitical developments that central banks in the countries of the world anticipate are successive, each according to its location of events and the extent of its exposure to successive variables and its ability to deal with them. .
The real capabilities and success of central banks globally appear in dealing with variables at several levels, including growth rates in the local banking sector for each country, the safe expansion of banks’ balance sheets, the enhancement of their net profits, the continued attractiveness of the national currency as a container for savings, and the absence of pressure on the financing cost of banks. All of which the Central Bank of Kuwait succeeded in achieving. Despite the passage of a year of the monetary tightening cycle, Kuwaiti banks maintained comfortable growth rates in the deposits and loans portfolios, reports Al-Anba daily.
Despite the decrease in the margins between the interest rates on deposits with banks for both the dinar and the dollar, they are still in favor of deposits in dinars, and the margins between the interest rate on the dinar and the US dollar allow the Central Bank the ability to maintain the stability of the exchange rate of the dinar and prevent any speculative operations that may occur.
Local banks continued to expand their balance sheets during March 2022 to March 2023, by increasing the loan and deposit portfolios, supported by the improvement in the operating environment in conjunction with the reopening of the economy on credit activity, and raising the discount rate (8 times since March 2022 by 250 basis points, to become at 4% currently to a lesser degree than the rate of raising regional and global central in order to devote monetary and financial stability and maintain the competitiveness of the currency.
The national economy serves as a storehouse of local savings and promotes an atmosphere that supports sustainable economic growth, taking into account the economic conditions locally and globally, the geopolitical repercussions, and the directions of monetary policy in global economies.
The data of the Central Bank of Kuwait’s monthly statistical bulletin for the month of March 2023 showed that the budget of local banks expanded to reach 85.4 billion dinars, with a growth rate of 6.8% at the end of March 2023, compared to a balance of 80 billion dinars at the end of March 2022. The deposits and loans portfolios of local banks witnessed growth, as dinar deposits (75.3% of total deposits) continued to grow by 6.1% to reach 35.8 billion dinars at the end of March 2023, compared to a growth rate of 5.6% to reach 33.7 billion dinars at the end of March 2022. The annual growth of loans slowed down to record 5.1% at the end of March 2023 to reach 47.2 billion dinars, to reflect the impact of the previous increases in discount rates, taking into account the period of slowdown.
The data showed that the margins of interest rates on deposits remain in favor of the Kuwaiti dinar compared to deposits in US dollars, as the margins between the interest rate on the dinar and the US dollar still allow the central bank the ability to maintain the stability of the dinar exchange rate and prevent any speculative operations that may occur to take advantage of the price differences between the dollar and the dinar. In addition, deposits in dinars are still attractive under the umbrella of the Deposit Protection Law in light of the successive fears and crises experienced by global markets and banks.
Despite the decrease in the margins between interest rates on deposits with banks for both dinars and dollars, they are still in favor of deposits in dinars, as the interest margin between the dinar and dollars for one-month deposits reached 0.730 percentage points in March 2023, compared to 0.780 percentage points in March 2022. The margin for 3-month deposits reached 0.687 percentage points in March 2023, compared to 0.754 percentage points in March 2022.
The figures show that the increased margin between the average interest rates on deposits and loans contributed to enhancing the net profits of local banks, as the margin increased between the weighted averages of interest rates on outstanding balances for both term deposits and credit facilities in dinars by about 0.1332%, bringing the margin up from 2.258% to 2.3912%.
This came as a result of an increase in the weighted average interest rates on loans by a greater percentage than the increase in interest rates on deposits, as the weighted average interest rates on deposits increased from 1.3991% in March 2022 to 2.4030% in March 2023, while the weighted average interest rates on loans increased from 3.6571% in March 2022 to 4.7942% in March 2023.
And taking into account the distribution of customer deposits in Kuwaiti dinars according to interest rates, (a segment of more than 5.0% to 5.5%) constitutes about 7.8% of the total of those deposits, and (a segment of 5.5% to 6%) constitutes about 3.3%, and a (more segment) constitutes From 6% to about 0.1%.
These positive margins were reflected in the profits announced by Kuwaiti banks during the past year and the first quarter of this year. During 2022, local banks witnessed a remarkable growth in their net profits compared to 2021, as net profits (after deducting taxes and minority rights) amounted to about 1.214 billion dinars. This is a record level, and an increase of about 332.1 million dinars, or about 37.7%, compared to about 881.6 million dinars achieved in 2021, thus recording the profits of Kuwaiti banks during the past year, their highest levels during the last 16 years, i.e. since 2007, before the global financial crisis, At that time, Kuwaiti banks achieved net profits amounting to about 1.03 billion dinars, while the profits of Kuwaiti banks did not exceed the level of one billion dinars until last year.