Saudi Banks See 9% Increase in Money Supply in June 2023
In a recent report released by the Saudi Central Bank, the money supply of Saudi banks surged by 9 percent in June 2023, reaching a total of SR2.9 trillion ($773 billion). This growth was primarily driven by a significant 17.32 percent increase in the institutions’ term and savings accounts, which totaled SR903.71 billion.
Breakdown of Money Supply Components
Demand deposits accounted for the largest share of the total money supply at 49 percent, totaling SR1.42 trillion and increasing by 7 percent during the period. Other quasi-money holdings, including foreign currency deposits and outstanding remittances, made up 12 percent of the total money supply, with a slight increase of 0.32 percent.
Currency outside banks held an 8 percent share of the money supply, growing by 4 percent. Most Gulf Cooperation Council countries, including Saudi Arabia, peg their currencies to the US dollar to mitigate currency fluctuations.
Impact of US Federal Reserve on Interest Rates
Interest rates in Saudi Arabia and other GCC countries closely follow the trends set by the US Federal Reserve. The Fed has recently raised interest rates to combat high inflation, reaching their highest point in 23 years. Economists are now speculating about potential rate cuts as inflation begins to cool.
Challenges and Opportunities for Saudi Banks
Despite strong growth in government-related entity deposits, Saudi banks are facing increased competition for liquidity. Fitch Ratings expects the proportion of GRE accounts to continue growing, impacting the funding mix for banks. However, Saudi banks are projected to outpace the GCC average in growth, with a focus on corporate financing in 2024.