Kuwait money supply strong in Q1

Year-on-year growth slowed down slightly to 9.1% compared to 12.8% in December 2001. Growth was driven largely by dividend distributions by banks, though credit growth also played a role. Six banks distributed KD 204 million in dividends during 1Q02 while credit facilities rose by KD 110 million.

According to NBK's report, the pace of growth in domestic credit facilities slowed pace during 1Q02 to 1.8%, down from 6.1% in 4Q01. Still, year-on-year growth advanced to 19.6%, the highest rate seen since August 1998 when the last down cycle started. The cycle hit bottom almost a year ago when year-on-year growth fell to 0.23% in April 2001.

Industry, construction and personal facilities accounted for most of the growth in credit, while trade, real estate and non-bank financials saw their outstanding debt drop. Credit grew in January and March, whereas February saw balances fall slightly, most probably due to two long holidays.

The increase in liquidity during the first quarter was reflected largely in higher demand deposits and foreign currency deposits which increased by KD 324 million and KD 151 million, respectively. The unusually large increase in demand deposits coincided with a sharp pickup in trading activity on the Kuwait Stock Exchange, with turnover rising by 70% from the previous quarter to reach KD 1.05 billion.

Savings deposits also increased while balances of KD time deposits and CDs were lower. Total private sector deposits were up 5.2% during the quarter, slightly under the 7.0% increase seen in 4Q01.

NBK reports that banks continued to place most of their excess liquidity in time deposits with the central bank which increased by 19.5% (KD 272 million) during the first quarter. Meanwhile, bank holdings of public debt instruments (PDI) fell by KD 19 million, while the total outstanding balance was practically unchanged.

This is consistent with the trend over the last two years where the CBK has relied primarily on the one-month deposit scheme to manage liquidity in the system. The liquidity of banks (excluding interbank funds) increased during the first quarter to 25.0% at end March 2002, up from 24.1% at the beginning of the year.

The NBK report notes that during the first quarter of 2002, KD 93 million in Debt Purchase Bonds (DPBs) were redeemed, reducing their share of total bank assets to 7.7% in March from 8.6% in December 2001. Most of the redemption occurred in January which saw the largest monthly drop in DPBs outstanding over a year.

With the discount rate unchanged since October 2001, the downward trend in deposit rates slowed down in 1Q02. In fact, while most rates on short tenors fell by 2 to 9 basis points (bps) during the quarter, the 12-month KD time deposit rate rose by 2 bps. Nonetheless, average rates paid continued to drop as time deposits were being renewed at lower rates.

According to the NBK report, during March 2002 three-month treasury bills were issued at an average rate of 3.059%, 7 basis points above the average for December. The rate was slightly higher in February at 3.096%. Six-month bills for their part were issued at rates similar to those prevailing in November. The 1-year bond rates in March remained unchanged at 3.75% while the CBK issued the first batch of 2-year bonds since 2000 at 3.875%.