Kuwaiti consumer lending is climbing at the fastest pace in more than four years after the state agreed to write-off interest on US$2.6 billion in loans, fueling a spending binge on products from mobile phones to cars.
Bank loans to individuals grew 13.3 per cent in the year to April, the latest figures available and the highest level since November 2008, according to the central bank. That compares with a 5 per cent increase in the UAE, home to the Middle East's shopping hub of Dubai. Consumer lending in Kuwait outstripped companies, which rose 1.7 per cent in the period.
Kuwait, the third-biggest Opec oil producer, has rescued indebted citizens before. Following the 2008 global credit crisis, 26,000 Kuwaitis received interest-free loans of 420 million Kuwaiti dinars as of October last year, according to the central bank. Parliament passed a law in April requiring the state to pay 744m dinars to purchase loans taken before March 30, 2008, write off interest and reschedule payments into easy installments.
"They are always looking for more forgiveness from politicians, so why not borrow more money," Jassim Al Saadoun, head of Kuwait-based Al-Shall Economic Consultants, said by phone. "Consumer loans are the highest return for banks because the margin is very high. It's very profitable."
The debt waiver, low-interest rates and higher salaries are helping Kuwaitis, whose per-capita income was more than $39,000 last year, to splurge on luxury goods. The law probably will not involve a significant cost to banks or affect their ratings because the amount will largely be borne by the government, Fitch Ratings said in April.
Kuwait's central bank restricts lenders from charging more than 3 per cent above the benchmark discount rate of 2 per cent on consumer loans. Wage increases in 2011 and 2012 boosted household income of citizens by about 11 per cent, according to Nemr Kanafani, senior economist at the National Bank of Kuwait. Kuwaiti nationals make up about a third of the 3.9 million population, with the rest foreign workers.
The continued acceleration of consumer-loan growth into 2013 "is somewhat surprising given that the drivers, salary increases in particular, took effect a year ago," said Mr Kanafani. The interest waiver on loans should provide additional impetus for credit growth into 2014, he said.
Consumer loans accounted for about 81 per cent of total loan growth in April, central bank data show. Total loans increased 5.8 per cent in the year to April, the fastest pace in more than three years. The three-month Kuwait Interbank Offered Rate was 0.75 per cent on Tuesday, compared with 0.8125 per cent at the end of last year.
* Bloomberg News