Kuwait Times - 15/5/2006

In its latest economic brief on monetary developments, National Bank of Kuwait (NBK) reports that money supply (M2) soared by 6.8%, one of its largest monthly increases ever recorded. The increase has pushed year-on-year growth in money supply to 16.9%. Strong growth in domestic credit remained an important driver of increased liquidity, though in March it was overshadowed by large increases in foreign assets stemming from inbound transfers as well as the payment of dividends by five Kuwaiti banks. The latter injected about KD 245 million into the system.
Money supply rose by KD 1.4 billion during the first quarter of the year, growing at an annualised rate of over 50%. This followed a small increase in 4Q05 at an annualised rate of only 1.3%. Credit growth recorded 28% annualised growth for the second quarter running, providing about half of the increase in liquidity. Another boost came from a KD 509 million (21%) increase in the foreign assets of the Central Bank of Kuwait (CBK), more than half of which occurred in March. This increase reflects in part a buildup of deposits by public institutions at local banks. Another boost to liquidity came from KD 370 million in bank dividends paid during February and March.
Foreign assets of local banks saw similar increases to those at the CBK, rising by KD 490 million (13%) during the first quarter, most of which occurred in March. However, an almost equal increase in deposits of non-resident banks neutralized the impact on domestic liquidity.
NBK states that private sector deposits rose by a whopping KD 921 million during March alone. The strong growth was in both KD deposits, which rose by KD 708 million, and foreign currency deposits, up KD 213 million. KD time deposits saw by far the largest increase of KD 644 million. Sight deposits were up by a smaller KD 51 million, while saving deposits rose by a mere KD 14 million during the month.
Outstanding credit facilities to residents rose by KD 220 million to reach KD 12.6 billion. Year-on-year growth remained at a high of 25%, with annualized growth during the last six months reaching as high as 28%. Growth was most rapid in lending to the real estate sector which rose by KD 91 million during the month, followed by personal facilities excluding lending for the purchase of securities, up by KD 55 million. Growth in lending to non-bank financial institutions slowed somewhat rising by KD 27 million.
Meanwhile, lending for the purchase of securities saw a large decline of KD 99 million coinciding with the significant correction witnessed by the Kuwait Stock Exchange.
According to NBK, consolidated bank assets rose by KD 1.1 billion in March to reach KD 23.4 billion, following smaller though significant increase during the previous two months, adding up to an annualised 37% during 1Q06, the highest rate in years. Credit facilities to residents were the largest contributor to this growth, having risen by KD 758 million during 1Q06. Bank's liquid assets followed with a rise of KD 641 million (KD 456 million excluding interbank placements), most of it held in time deposits with the CBK, which rose by KD 645 million in 1Q06 and KD 359 million in March alone. The rise in liquid assets (cash, balances with CBK, and holdings of public debt instruments and CBK bonds) lifted the ratio of liquid assets to total bank assets to 14.6% at the end of March.
In the absence of increases in the CBK's discount rate since early November, despite several rate increases on the US dollar by the US Federal Reserve, domestic rates appeared to take a break in March following significant increases in recent months. Ample liquidity, as evidenced by the rise in bank deposits with the CBK, allowed local interbank rates to move lower. The 1-month Kuwait interbank offer rate (KIBOR) fell by 11 basis points (bps) to 5.27%, while the 12-month KIBOR lost 6 bps to 6.11%. Customer deposit rates too took a breather, with the weighted average rate paid on all KD deposits unchanged during the month.