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Bigger Kuwait wages drive growth in consumer loans

Kuwaiti bank loans to individuals are growing at the fastest pace in almost three years as consumers in the Arabian Gulf nation use higher income to spend more on cars, homes and shares.

Personal lending by Kuwait’s banks grew 10.6 per cent in the year to June, the highest since August 2009, central bank data show. Banks can charge about 5.5 per cent for consumer loans, based on current policy rates, compared with 8.99 per cent for personal loans in the US, according to rates offered by New York-based Citigroup on its website.

Consumer loans accounted for 80 per cent of total credit growth in June, compared with about 38 per cent in Saudi Arabia.

“Banks need to make a living,” Naveed Ahmed, a banking analyst at Kuwait-based Global Investment House KSCC, said by e-mail on August 2. “With corporate lending almost at a standstill given the economic environment, consumer lending is the most viable and attractive option.”

Lower rates

Kuwait’s banks may charge as much as 2.5 percentage points more than the nation’s benchmark discount rate on corporate loans maturing in less than a year. The central bank has held the discount rate at 2.5 per cent since February 2010, and the three-month Kuwait interbank offered rate was 0.9375 per cent on Wednesday, down 13 basis points this year.

That compares with a 17 basis-point gain in the Saudi Interbank Offered Rate to 0.95 per cent and a five basis-point advance in Qatar’s rate to 1.22 per cent. Government spending led to a 14 per cent increase in loans to Saudi Arabia’s private businesses in June, the fastest in more than three years. Total credit growth was 40 per cent in Qatar that month, according to central bank data. By contrast, loan growth to Kuwaiti private businesses was 4.5 per cent in June. Repeated clashes between lawmakers and the government have hindered state investments, and banks are focusing on the nation’s 3.7 million consumers to help build credit growth that’s remained below 10 per cent since 2009.

“In Saudi and Qatar, where loan growth is strongest, it has been led by expansionary government spending which has fed through into private sector credit growth,” Liz Martins, a Dubai-based senior economist at HSBC Holdings, said by e- mail on July 29. “This fiscal stimulus remains notably absent in Kuwait.”

Current expenditures by OPEC’s fourth-biggest oil producer accounted for 63 per cent of total public expenditure in the 2011-2012 fiscal year, as spending on wages climbed 29 per cent, central bank data show. Kuwaiti personal loans, which include money used for education, buying and restoring properties and purchases of securities, rose in each of the 10 months to June. —