Credit growth in Kuwait remained weak in January as loans to non-banking institutions continued to decline, offsetting rising household credit.
The latest figures released by the Central Bank of Kuwait show that in January, private sector credit growth was up nearly 2.3 per cent on a year-on-year basis, the slowest pace since August 2011. In 2008, private sector credit growth was over 20 per cent.
National Bank of Kuwait (NBK) is predicting credit growth will pick up later in the year to average around 4-5 per cent for the 12 month period. “Driving the demand for credit will be the consumer sector, which has been growing strongly,” says Elias Bikhazi, head of research at NBK. “The consumer sector is being supported by a good employment and income situation.
“The rest of the economy is in more of a wait and see mode, especially in relation to government spending and its development plan.”
Kuwait has established the Partnerships Technical Bureau (PTB) to drive through its plans to raise around $30bn from public-private partnerships (PPP) and privatisations to improve infrastructure and diversify the economy. Kuwait’s fractious politics have often stalled government spending projects in the past.
Bankers in Kuwait say the liquidity in the banking system is there, but the opportunities for new lending are not expected to pick up until the government starts implementing its spending plans.
“Banks are ready to lend to, but the demand is not there yet,” says one banker at a local lender. While banks wait for domestic opportunities their foreign assets have been growing. In January, foreign assets held by local banks rose 14.3 per cent compared to a year ago. Bankers are hopeful the infrastructure spending will start to pick up soon. “Some good progress has been made on government spending plans, but we would like to see things moving a bit faster,” says the local banker.
Weighing down credit growth figures in Kuwait is lending to non-banks, which fell KD65m ($233m) in January. Many investment firms in Kuwait were overleveraged when the financial crisis hit in late 2009 forcing them to restructure their debts or repay. “The investment companies are the main area where credit growth will be negative as they are focused on cleaning up their balance sheets,” says a local analyst.
Strong real estate sales should also help to boost credit demand. In January, real estate sales hit KD318m, a rise of 64 per cent on January last year. While this level of demand is not expected to persist throughout the year, it should remain high.
A more substantial rise in overall credit growth later this year will be dependent on many of the government’s infrastructure plans moving ahead. Until then, it will remain weak.