Saudi Banks Witness 8% Surge in Money Supply, Reaching $753 Billion
Official data released by the Saudi Central Bank, also known as SAMA, revealed that Saudi banks’ money supply soared by 8 percent in March compared to the same period last year, reaching SR2.82 trillion ($753 billion).
Term and Savings Accounts Drive the Growth
The increase in money supply was mainly fueled by a significant 21 percent surge in banks’ term and savings accounts, reaching SR843.25 billion. These deposits constituted 30 percent of the total money supply, following demand deposits at 50 percent.
Factors Influencing the Upsurge in Term Deposits
Several factors contributed to the rise in term deposits, including the elevated interest rate environment within the Kingdom and an increase in accounts held by government-related entities. The US Federal Reserve’s anti-inflationary monetary policy also played a role in driving individuals and entities towards seeking higher returns through these accounts.
Strengthened Profits Despite Costly Funding Sources
While deposits represent a costly funding source for banks, the surge in interest rates strengthened Saudi banks’ profits on the asset side. Higher borrowing rates led to increased income, offsetting the challenges posed by the expensive funding environment.
Lending Growth Outpacing Deposits
Saudi bank loans grew by 11 percent during this period to reach SR2.67 trillion, outpacing deposit growth. S&P Global suggested that Saudi financial institutions would explore alternative funding strategies to manage the rapid increase in lending, particularly driven by rising demand for new mortgages.
Anticipated Trends in Saudi Banks’ Funding Strategies
S&P Global projected an increase in Saudi banks’ foreign liabilities to meet the funding demands of robust lending growth amidst slower deposit expansion. The agency anticipated Saudi banks to adopt alternative funding strategies to support expansion, tapping into international capital markets over the next three to five years.