From government deposits to private sector funds, some local banks have begun to expand their competition for savings in, especially in dinars, where it was recently noticed that banks increased their activity in renewing deposits of companies and individuals, especially the elite clientele, in an effort to increase their levels of savings liquidity.
Initially, responsible sources told a local Arabic daily that banks have been seeking for some time, and before the Central Bank of Kuwait’s decision to raise the discount rate by a quarter of a percentage point to reach 1.75 percent, to attract more private sector deposits in dinars but had resorted to strengthening the relationship with its elite clientele with added benefit.
The central banks in Saudi Arabia, the UAE, Bahrain and Qatar raised interest rates by about 25 basis points, after the Federal Reserve raised the interest rate by the amount the day before yesterday, while the Bank of England increased interest rates by 25 basis points as well, to reach 0.75% in the third consecutive hike.
The sources pointed out that the banking smile was not the only attraction for additional deposits, as banks resorted to attracting additional levels of funds by offering interest higher than what the customer usually obtains, even if this cost them to bear additional interest, which in some cases is a quarter or half a point higher than the traditional pricing.
The sources indicated that banks offered their private sector clients an interest estimated at 2 percent, and others exceeded this price, although, until not long ago, the appetite of local banks was not wide enough to show their desire so much to increase private sector deposits, some of which were even granting approximately 1.25 percent on bigger deposits, which at the time seemed to be unattractive funds to the point of increasing their cost, as the focus was and still is more on government deposits, especially long-term, in light of the continuing operating challenges locally, regionally and globally.
The sources pointed out that the competition for private sector deposits began to flare up some time ago between some banks, and that this competition is not quantitative, meaning that its target is not growth in the number of depositors, but rather qualitative, as the focus in growth in its portfolios is on elite clients, especially those who have high levels of liquidity. They are distinguished by the fact that their money is stable.
The sources said that banks had to re-price the deposits of some of their elite clients to convince them to renew their terms, and that they offered a margin half a point larger than the rate they initially offered, after they winked at their desire to liquidate their deposits, in preparation for transferring them to another bank that offered them a better price.
As for the question about the reasons for the increase in banking activity towards deposits of clients from the private sector, in practice this move feeds more than one consideration, on top of which comes the expectations of the interest trend globally, where it is likely that the Federal Reserve will raise interest 6 times by 25 basis points in 2022 for each of them (compared to 3 rises 3 months ago), its beginning came the day before yesterday by a quarter of a point, which is the same increase that was decided locally at the same time, knowing that there are at least 3 other hikes in 2023, while the Central Bank of Kuwait is likely to follow the example of the Fed until the end of this year, at least in most of its decisions.
Hence, a majority of local banks increased their activity in attracting more deposits early, because, in short, they will be reflected in the volume of credit expected to grow in the next stage. The increased deposits in banks were able to grant more financing, thus maintaining its market share.
Of course, the Fed’s trends towards interest pricing are not the only incentive to encourage local banks to increase their balance of private sector deposits in dinar. There are other reasons related to the banking need to rearrange their maturity ladder, as it may be noted that competing banks to attract savings funds from the dinar With a higher interest than the market-traded one, it is the same that rushes to contribute to covering any bonds offered by the Central Bank of Kuwait, despite its relatively low return compared to the cost of its funds.
The sources pointed out that the department of competition for private sector deposits includes so far about 6 banks, all of which have recently worked to court their clients whose deposits are about to expire, and they did not ask to renew them as usual, explaining that officials of some banks concerned with attracting deposits, raised their prices.
Finally, the private funds will be doubled, in some cases, especially if the customer expresses a desire not to renew, due to the weak interest that he obtains from the bank, as efforts are increasing to persuade him to stay in exchange for an increase in his interest.
The sources indicated that about 4 banks are reluctant to enter into the auction of open deposits, indicating that their move to attract the funds of companies and individuals, specifically major clients, is based on incentive tools that are not limited to price only, and that their balances of deposits liquidity motivate them to maintain stability. The prices of deposits circulating in the market at their normal rates, and not paid for special purposes, differ from one bank to another.
According to the latest monthly statistic issued by the Central Bank of Kuwait, the total deposits in local banks jumped last January by about 729 million dinars, or 1.64%, compared to their level in December of 2021, to reach 45.29 billion, compensating in the first month of this year the total lost during the entire past year. It had fallen by 714 million, ending last year at 44.561 billion.
The increase in deposits came in January as a result of an increase in the total private sector deposits by 744 million dinars on a monthly basis (+2%) and 813 million dinars on an annual basis (+2.19%) to reach 37.933 billion dinars, noting that it had witnessed a decrease in January from Last year, compared to its level in December 2020, it amounted to about 212 million (-0.57%).
The private sector’s deposits in dinars rose last January by about 514 million dinars (+1.47 percent) compared to December 2021, while their rise reached 476 million dinars (+1.36 percent) compared to January of last year, to reach 35.48 billion, after it had been recorded in January 2021, a decrease of 268 million (-0.76 percent) compared to its total in December 2020.
As for private sector deposits in foreign currencies, they increased by about KD 229 million (+10.3 percent) last January on a monthly basis, and reached 337 million (+15.93 percent) on an annual basis, reaching 2.452 billion, compared to an increase of 56 million (+2.72) percent) recorded in January of last year compared to December 2020.
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