Economic Insights

Domestic credit ended the quarter and the year on a strong note, rising 1.5% q/q and 7.6% y/y, respectively. Q4’s performance was driven by robust lending for securities purchases and to banks & financial institutions, while growth in both business and household credit slowed to an average of 0.7% q/q. For 2025, the expansion in business lending was a key driver of resident credit growth, increasing by 6% y/y on the back of the ’other services’, oil & gas and real estate sectors. And while household credit growth lagged business lending, it still increased by a decent 3.7% in 2025, the best performance in four years, and with most of the gains coming in H2 2025. On the liabilities side, resident deposit growth strengthened in 2025 on increased public-sector deposits, while non-resident deposits almost doubled. Strong project awards momentum should support credit growth going forward and the forthcoming real estate financing law will be a positive for the household credit sector.  

Business lending growth eased in Q4 2025 to 0.6% q/q, its slowest rate since Q2 2024, but helped full-year growth come in at a still robust 6.0% y/y. In 2025, business credit growth was broad-based, coming from the “other services” (16.1% y/y), crude oil & gas (13.2%), and “real estate” (5.2%) sectors. In contrast, credit to the industrial sector contracted in 2025 (-1.8% y/y) for a third consecutive year, while lending growth to the construction sector slowed to 3.9% from 8.0% in 2024. Meanwhile, household lending growth slowed to 0.7% q/q in Q4 2025 (from 1.6% in Q3), its slowest pace in three quarters, though the full-year rate increased to a four-year high of 3.7%, more than half of which was achieved in H2 2025. We also note that credit for securities purchases spiked 27.9% y/y. As for credit to non-residents, it continued to log double-digit growth rates for the second straight year, at 36.1% in 2025, underpinned by the solid increase in “loans to banks” (66.5% y/y) and “other services” (40.8%), together constituting around 61% of total non-resident credit. The sizeable increase in project awards in 2025 (KD4.4 billion according to MEED Projects) and the strong start seen so far in 2026 bodes well for credit prospects, while the expected approval of the real estate financing law this year should be positive for household lending, too. That said, with the US Fed holding interest rates steady at its last meeting and signaling a more optimistic US economic outlook, futures markets see a more gradual pace of interest rates cuts for the year ahead, which for local credit growth, could mean a little less upside coming from lower borrowing costs. 

Residents’ deposits record strongest annual growth since 2022

Growth in residents’ deposits continued to increase for the third consecutive quarter in Q4 (1.8% q/q), propelling the 2025 growth rate to its highest since 2022 (4.7% y/y). Q4’s gain was primarily driven by higher public sector deposits (20.4% q/q) amid broadly flat private sector deposits (-0.1%). Private sector deposit growth ended 2025 at 3.8%. On the other hand, non-resident deposits increased by a staggering 89.3% due to a near-doubling (95% y/y) in private sector foreign currency holdings (perhaps partly reflecting higher funding needs), and a sharp increase in deposits of public institutions (127.6%). 

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