Money supply surges in Kuwait (page 1 of 2)

In its latest economic brief on monetary developments, National Bank of Kuwait reports that money supply increased rapidly during the first two months of 2004, with growth of 2.6% in January followed in February by a 3.2% rise, according to recent figures released by the central bank.

While rising credit facilities continued to be the largest contributor to money growth this year, liquidity also received a mild boost in February from United Nations Compensation Commission payments for damages due to the Iraqi invasion and other inflows to the system.

Flush with liquid assets and limited tools to manage excess liquidity, banks brought interest rates on customer deposits down. Recent treasury bill auctions signal further cuts to come.

Money supply rose just above the KD 11 billion mark. The strong growth comes after a 1.4% decline seen during the last quarter of 2003. Year-on-year (yoy) growth jumped to 13.8%, the highest rate in 18 months.

Credit facilities to residents reached KD 8.95 billion, rising by KD 328 million and KD 122 million in January and February, respectively, or almost 6% in just two months. This helped accelerate the yoy growth in credit to 24%, a rate not seen in almost six years when the rapid expansion in credit witnessed during the mid-90s slowed down considerably starting in 1998.

According to the NBK report, strong growth was seen in lending to non-bank financial institutions and to the trade sector, with the two increasing by 24% and 8.2% since the start of the year, respectively.

The first reflects continued increase in trading activity in the local stock market with average daily turnover up 50% during the first two months of the year compared to 2003.

Personal facilities saw a slowdown in growth, rising by only 2.1% thus far this year and accounting for under 17% of new credit compared to 54% in 2003. Lending to construction also saw a deceleration from 2003 as it accounted for under 4% of credit growth versus 9% last year, with growth standing at 2.6%.

February saw a respite from the seven-month decline in net foreign assets that had drained KD 834 million out of the system during the latter half of 2003 and the first month of the year. NFAs rose by KD 125 million in February, an increase of 5.2%.While part of the increase stemmed from KD 38 million in UNCC payments,other inflows increased foreign assets at both the central bank and local banks.

NBK's Economic Brief reports that private sector deposits rose by 6.1% in the first two months of the year, or KD 601 million, a large increase compared to a KD 703 million increase during 2003 as a whole. Most (69%) of the increase was in demand deposits that swelled some 20%, with most of that occurring in February.

That was also the case in 2003 with demand deposits, accounting for more than 80% of growth. Higher stock trading activity was no doubt one factor behind the rise in demand deposits. Dividend distributions are likely to have been another major contributor, with about KD 187 million being paid by four banks only.

Savings deposits also accounted for a big part of deposit growth in January and to a lesser extent in February, while time deposits continued to decline. Savings deposits have grown by a substantial 13.3% thus far this year, in contrast to a far more modest 2.4% during 2003.

As expected, total assets of local bank increased along with stronger credit and a growing deposit base. The growth was tempered by a drop in local interbank placements for three consecutive months after growing rather steadily for two years.