Kuwait’s broad measure of money supply (M2) surged by KWD 511 million during February 2010 to reach an all time high of KWD 25.6 billion. The increase in M2 was in large part attributed to the KWD 355 million surge in Quasi money. However, growth in M2 was not accompanied with the expansion of credit facilities that are growing at a marginal growth rates.
Total residents’ deposits grew by KWD 466 million, or 1.65% to stand at KWD 28.6 billion at the end of Feb-2010, mainly due to the rise among private sector sight, saving, and time deposits of KWD 517 million.
Private sector deposits, which represent a significant portion of local Banks’ deposit base, with a percentage contribution of 86.7%, witnessed a significant increase of KWD 481 million to record KWD 24.84 billion at the end of Feb-10. Moreover, private sector deposits denominated in Kuwaiti Dinar compromised the majority of private sector deposits as its accounted for 77.4% or KWD 22.16 billion, whereas private sector deposits in foreign currencies constituted the remaining 9.4% or KWD 2.68 billion.
Government deposits continued the downward trend for the fourth consecutive month to decline by 0.40% equivalent to KWD 15 million to stand at KWD 3.79 billion at the end of February, hence contributing 13.3% to total banks’ deposits.
Credit facilities extended by local banks to residents witnessed a moderate increase of KWD 37.6 million compared to Jan-10 to record at the end of the month around KWD 25.15 billion. On a yearly basis, credit facilities witnessed a slight upward movement in 2009, with a growth of 6%, much lower than the 17% growth recorded during 2008. The marginal growth rate seen so far this year is mainly due to the liquidity squeeze in the market, tight credit conditions, high risk of default, along with the deterioration in financial assets prices which all together urged banks to implement stricter credit policies.
During the month of March, the CBK continued its policy of helping banks, who have excess liquidity, to find short-term investment opportunities that could contribute in compensating for the slowdown in credit growth. As a result, the CBK announced the issuance of 3 tranches of one-year Treasury Bonds during the month for a total value of KWD 400 million with all carrying a coupon of 1.25% p.a. Treasury Bonds issued by the CBK, which exceeded KWD 2 billion since Jan-09, have been formulated to absorb excess liquidity with local banks and to create investment opportunities for risk-averse banks that are still reluctant to extend additional credit to local corporates.
Kuwait Inter-bank Offered Rates (KIBOR) across all maturities sustained the overall downward trend seen in 2009 and the first two months of 2010, to register a moderate drop during March 2010. After averaging 0.91% during February, the 3-month KIBOR dropped by 3 basis points from last month to average around 0.88% in March-2010. Longer-term 1-year and 2-year rates saw a drop of 8 and 6 bps compared to last month and averaged 1.38% and 1.63% respectively; while 3-year rate saw a drop of around 4 bps to average 1.94% during March-10.