A report issued by the National Bank of Kuwait said the performance of Kuwait’s credit market was strong in the second quarter of 2022; it rose by 2.3% on a quarterly basis, which pushed the growth rate on an annual basis to 9.6% last June.
The recovery of credit provided to the business sector continued, while the growth of personal loans remained very strong, and even accelerated compared to the first quarter of 2022, reports a local Arabic daily.
As for the performance since the beginning of this year, the credit growth rate reached 5.7%, almost equal to the growth recorded in the year 2021 as a whole by 6.3%. Credit to the business sector grew by 2.4% q-o-q, albeit at a slower pace compared to the fastest growth recorded in 10 years in the first quarter of 2022 (+3.7%), which led to an increase in the yoy growth rate to 6.2% in June.
The credit provided to the business sector continues to benefit from the return of economic activities to normal, as the restrictions related to the pandemic have been completely lifted, and against the background of pent-up demand for capital spending due to the weak capital expenditures of companies since the outbreak of the pandemic, and the improvement of the operating environment in general.
The commercial sector was the main beneficiary of the return of business activities to normal, and recorded the fastest growth rate in the second quarter of the year, reaching 6.1%, and continued the recovery that it started in the first quarter of the year (+5.1%) after declining for six consecutive quarters.
On the other hand, the oil and gas sector witnessed its first quarterly decline after recording rapid growth in the previous six quarters. On an annual basis, the industrial sector (+12.9%) and the oil and gas sectors (+8.9%) remain in the lead.
The performance of personal credit also improved (+3.1% on a quarterly basis) compared to the first quarter of the year (+2.2%), with the annual growth rate in general stabilizing at its highest levels recorded in several years, reaching about 14% in June. This strong growth is attributed to the increase in consumer loans and housing loans, both of which rose by about 14% on an annual basis.
A number of material factors contributed to the growth of personal lending, including continued strong demand and high valuations of the residential real estate sector, continued strong consumer spending, and various campaigns (which sometimes included offers of credit facilities at zero interest) launched by many banks to attract retail customers.
Also, given the nature of fixed interest rates in general on personal loans in Kuwait, and the upward trend of benchmark interest rates (locally and globally), it is possible for some borrowers to accept their loans early in order to secure a lower interest rate.
In addition to the factors mentioned, credit growth may continue to improve thanks to the return of business activities to their normal levels, and the rise in oil prices, which may contribute to enhancing confidence levels and improving the pace of project assignments, in addition to the pent-up demand for capital expenditures for companies.
On the other hand, the rise in interest rates, given the expected path of record rates, at the global and local levels, may weaken the pace of growth to some extent, but there are expectations that the factors supporting growth will have a deeper impact. In addition, business credit growth may slow in the second half of the year, as we have historically done.
At the same time, the growth of domestic deposits remained strong in the second quarter of the year, which led to an increase in the growth year-on-year to 6.7% in June, which was mainly attributed to the growth of private sector deposits, which increased by 2.9% on a quarterly basis and contributed to Year-on-year growth pushed up to 7.1%.
Despite the rise in oil prices, government deposits with local banks remained unchanged in the second quarter of the year and declined by 2% since the beginning of this year (+4.6% year-on-year).
Looking at the distribution of private sector deposits in Kuwaiti dinars, demand and savings deposits grew at a slower rate (1.4%) in the second quarter of the year compared to more expensive time deposits (+3.5% q-o-q), bringing the latter’s growth to 7.7% since beginning of the current year.
The growth in term deposits comes after three consecutive years of steady decline, which led to a cumulative decline of 17% between the end of 2018 and 2021. In the future, given the continued rise in interest rates, the growth rate of time deposits is likely to outpace the growth of demand and savings deposits, reflecting the trend that prevailed during the past three years.
The Central Bank of Kuwait has raised the discount rate by a cumulative rate of 1.25% (25 basis points over five times) so far this year, lower than the 2.25% cumulative increase authorized by the US Federal Reserve. Accordingly, the weighted average interest rate on loans, and to a lesser extent on deposits, began to rise.
Since the Federal Reserve will continue to raise interest rates for the remainder of this year, it is assumed that the discount rate will continue to be raised in Kuwait, leading to higher loan yields and cost of funds.