The report said that bad loans reached their peak this year, and expected the growth rate of loans to reach by end of year 5.4% with 4% increase than last year. Liquidity surplus is expected to increase by KD1bn by end of this year compared to liquidity surplus of last year.
Overall loan growth moderated slightly to 5.0% y-o-y in October 2012, after touching a 29-month high of 5.5% y-o-y in September 2012. In absolute amount, total loans outstanding continued to be among the highest levels, at KWD26.8bln during the month.
The slight slowdown in the overall loan growth was due to moderation across economic sectors. Loan growth to the trade and real estate sectors was lower at 11.2% y-o-y and 4.0% y-o-y respectively in October 2012 (September 2012: 11.7% and 4.9% y-o-y respectively), while industry loan growth was down to 0.9% y-o-y during the month (September 2012: 3.4% y-o-y). Loans to non-bank financial sectors continued to be negative at 16.7% y-o-y in October 2012 vs. -16.4% y-o-y in September 2012.
Meanwhile, personal loans growth held firm at 11.8% y-o-y in October 2012. Loan growth to the construction sector turned around and was positive at 1.8% y-o-y in October 2012 (September 2012: -2.1% y-o-y), the first expansion in 14 months.
On the funding front, overall deposit growth expanded by 9.2% y-o-y to KWD32.7bln in October 2012 compared to 9.6% y-o-y in September 2012. Private sector deposits, which accounted for 84.4% of total banking sector deposits, increased by 4.8% y-o-y to KWD27.6bln during the month (September 2012: 5.1% y-o-y). Meanwhile, public sector deposits grew by 41.3% y-o-y to KWD5.1bln in October 2012.
Stronger deposit growth vs. loan growth gave rise to the banking system excess liquidity of KWD6.0bln in October 2012 (September 2012: KWD5.9bln).
In the first ten months of 2012, overall loan growth expanded by 4.5%. Should the current loan growth momentum sustains for the rest of the year, 2012 full year loan growth is estimated at 5.4% (2011: 1.63%). The gradual improvement of the operating environment in Kuwait and timely implementation of the Kuwait Development Plan are crucial to the recovery of banking system loan growth in 2012. Domestic banks should benefit in the medium to longer term.
On funding, total deposits of the banking sector grew by 6.5% in 10M12, translating into an annual growth rate of 7.8% for 2012. As such, excess liquidity of the banking sector might reach KWD6.1bln as at end-2012, higher than the KWD5.1bln registered as at end-2011 on back of faster deposit vs. loan growth.
On asset quality, Kuwait's non-performing loans (NPLs) are expected to have peaked in 2012 with gradual improvement in asset quality moving forward. However, impairment charges are expected to remain high for some banks in 2012 due to the need to improve low loan loss reserve coverage.