RIYADH: Saudi banks’ money supply increased by 9.21 percent year on year in October, reaching SR2.94 trillion ($782.96 billion), according to the Kingdom’s central bank, also known as SAMA.
A significant portion of this growth was driven by term deposits, which surged by 15.34 percent to SR971.1 billion during the period.
Demand deposits, the largest component of the money supply, accounted for 48.55 percent, or SR1.42 trillion, but recorded a comparatively modest growth rate of 8.63 percent.
In contrast, other quasi-money deposits, which represent 10.64 percent of the money supply, declined by 4.27 percent, totaling SR312.51 billion.
Time and savings deposits accounted for 33.07 percent of Saudi Arabia’s money supply in October, marking their highest level in nearly 15 years.
This upward trend has gained momentum in recent years, largely due to SAMA’s alignment of its interest rate policy with the US Federal Reserve.
The Fed’s tightening cycle, which pushed interest rates to a peak of 6 percent in July 2022, incentivized depositors to shift toward interest-earning accounts to maximize returns during this period of elevated rates.
This mirrored policy, aimed at combating inflation, made interest-generating accounts increasingly attractive to Saudi depositors seeking higher returns.
A significant factor contributing to the growth of term deposits has been the influence of institutional deposits, particularly from government-related entities.
According to Fitch Ratings, these entities accounted for a substantial 70 percent of the total deposit inflows in 2023. This strategic channeling of funds into time deposits not only provided banks with much-needed liquidity but also highlighted the role of bulk deposit agreements with favorable terms as a growth driver for this category.
Despite the Federal Reserve shifting to a monetary easing stance — reducing rates by 50 basis points in September and an additional 25 basis points in November — term deposits in Saudi banks continue to gain traction.
Government-linked entities appear to maintain their preference for term deposits due to their stability and return potential.
Additionally, the predictability of these deposits aligns well with the broader macroeconomic environment, where banks rely on such inflows to manage liquidity pressures effectively and maintain operational stability.
Another contributing factor could be the interest rate lag, where the transmission of lower benchmark rates into domestic banking systems takes time. This lag keeps deposit rates relatively competitive, allowing time deposits to retain their appeal even as monetary policy shifts toward easing.
Time and savings accounts, while crucial for liquidity management, are generally considered a costlier funding source for banks due to the interest obligations they carry.
Saudi banks, however, have managed to maintain robust profitability metrics, with most reporting strong financial results in 2023 and through 2024.
Fitch Ratings projects this strength to persist throughout 2024, supported by favorable macroeconomic conditions and the Kingdom’s high operating environment score of bbb+ — the highest among Gulf Cooperation Council banking sectors and emerging markets globally.
