Loan growth slow as banks await projects boom
Private sector credit growth in Kuwait is slowing as banks await a raft of new government development projects, according to economists in the country.
Year-on-year private sector credit growth was just 1.5 per cent in April, indicating that demand continues to be soft. In the previous month, year-on-year growth was 2.1 per cent.
Bankers and analysts in Kuwait say the lacklustre credit growth figures are the result of the lack of demand for loans, rather than risk aversion in the banks.
“There is not much demand for new loans in Kuwait at the moment, outside the consumer sector” says Elias Bikhazi, research director at the National Bank of Kuwait. “Most banks now are just waiting for the government projects to start happening and lending opportunities to come from that.”
The government has announced plans to use the private sector to develop 32 projects that could require around $28bn. None of these projects have yet to approach banks for financing, but by the end of the year, lenders should in place for the first wave of private sector projects.
That should help demand pick up and local analysts expect credit growth for 2011 to average around 5-6 per cent. That would indicate a pick up in the second half of the year. “We are expecting to see demand for credit pick up later in the year and for that to continue into 2012,” says Bikhazi.
Over the past 12 months credit growth has particularly low. The last time year-on-year credit growth was above 5 per cent was in May 2010.
Bankers in Kuwait say that although they expect things to pick up, so far demand for loans remains subdued. “We just don’t have that much call for new loans,” says one syndications banker in Kuwait. “The banks are liquid and not as risk averse as there were a few years ago, but we are not yet seeing the demand coming through from the corporate side.”
The resolution of defaults at Kuwaiti investment companies should also help improve the financial position of the banks. The restructuring deal for The Investment Dar’s $3.6bn debt in early June is an indication that more progress could be forthcoming on these issues.
Credit growth to residents has also remained broadly flat as one-off payments from the government boost the bank balances of Kuwaitis. In February, Kuwait granted every citizen a one off payment of KD1,000 ($3,640). That has reduced the need for individuals to borrow and increased liquidity in the banking system. “The Kuwaiti consumer is in good financial shape,” says Bikhazi.
In April, credit growth to residents rose by under 0.4 per cent. In February, it fell 7.5 per cent.
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