An unprecedented banking situation: liquidity rises one billion dinars

An unprecedented banking situation: liquidity rises one billion dinars

Salem Abdul Ghafour
The banking sector is in an exceptional situation with a clinical death rate for the growth of the lending balance against a rise in deposits of JD 1.3% in 5 months (January, May 2018), KD 441 million and growth in foreign exchange deposits of 11.6% Dinar). In contrast, the loans did not rise one dinar. Moreover, as the loans did not grow, liquidity increased. The item of time deposits with the Central Bank increased by 17.9% to KD 185 million in 5 months. The banks’ demand for the Central Bank increased by 5% to 145 million. In contrast, the balance of public debt instruments fell from 4.7 billion to 4.3 billion, reflecting an additional increase in the liquidity of the banking sector, which we find no way to employ them. In general, liquidity rose by about KD 1 billion against a one-dinar increase in lending in 5 months (January-May 2018). The growth rate of bank credit continued to shrink in 2018, a trend that has been deepening for nearly two years. The growth rate of loans during the first four months stood at 0 percent to settle at 35.3 billion dinars in April, the same value as in December 2017. The credit growth rate in the Kuwaiti banking sector was 3.2% in 2017 as a result of large debt adjustments, compared to a growth of 3% in 2016. The sector recorded a growth of 8.4% in 2015 and 6.2% And 7.8% during the years 2104 and 2013, respectively. According to data from the Central Bank of Kuwait, the rate of credit growth in April fell by a monthly rate of 0.5% compared to March, which recorded credit facilities of 35.5 billion dinars. In April, credit facilities witnessed remarkable stability at the end of last year, with the exception of the non-bank financial institutions which recorded a decline of 9.8% to 1.1 billion dinars and trade lending, which fell by KD 47 million. On the other hand, the rate of growth of deposits in dinars in banks jumped by 1.5% in the first four months to reach about 42.7 billion dinars in April, with a share of 6.6 billion dinars to the government and 36.1 billion to the private sector. Private sector deposits grew by 2.1% in April, compared to KD 33.1 billion in December and KD 3 billion in foreign currency deposits, which grew by 11.6% during the first four months. Meanwhile, banking sources said that the contraction of credit growth reflects the overall economic situation in Kuwait, and the lack of investment opportunities, which was reflected in the form of an increase in private sector deposits and a decline in lending with banks. The sources said that in the shadow of tight investment opportunities, private sector deposits are often rising and liquidity is increasing among banks lending according to specific rules and regulations in various circumstances, stressing that the historically high interest rate in Kuwait does not reduce the chances of lending growth. The majority of banks are aware of the limitations of the Kuwaiti market and the chronic economic problems. For many years, they have been cautious of expanding outside Kuwait to increase the share of revenues from other markets and reduce their dependence on the domestic market. She noted that many banks have been working for a long time to increase their revenues from other areas «non-interest», including fees and commissions, participation and leadership for financing foreign markets and profits of foreign currency transactions and derivatives and investment income.

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