Saudi Banks’ Deposits Hit SR2.54 Trillion in February
In a remarkable surge, Saudi banks’ total deposits reached SR2.54 trillion ($677 billion) in February, showcasing a significant 10.26 percent increase from the same month last year, according to official data released.
Growth Fueled by Time and Savings Deposits
An analysis of the data by the Saudi Central Bank revealed that the growth was predominantly driven by a substantial 26 percent annual increase in time and savings deposits, which reached SR838.53 billion.
Demand Reserves and Quasi-Money on the Rise
During the same period, demand reserves saw a 2.85 percent rise, totaling SR1.25 trillion, while other quasi-money increased by 7.57 percent, reaching SR352 billion.
Shift in Deposit Composition
Demand deposits constitute the highest share at 53 percent, slightly down from 57 percent a year ago. This shift is attributed to the growing popularity of term reserves due to rising interest rates, making this account category more appealing to clients seeking higher income-generating holdings.
Term Deposits Experience First Decline in 18 Months
Despite the popularity of term deposits due to rising interest rates aligning with US Fed rates, there was a 3 percent decrease month-on-month, marking the first decline in 18 months.
Pressure on Local Economy Support
The growth in loans has surpassed the liability side, putting pressure on the support for the expanding local economy despite the increase in bank deposits.
Saudi Arabia’s Funding Needs for Construction
MEED Projects forecasts that Saudi Arabia will require $640 billion for construction spending over the next five years, potentially leading banks to raise nearly $384 billion through increased deposits and debt.
Banks’ Funding Strategies and Debt Issuance
Financial institutes anticipate gathering more deposits and accessing the international debt market to support significant construction needs. Debt issuance has been increasing, with approximately $6.8 billion sold this year, compared to $5.4 billion for the entire previous year.
Challenges and Opportunities in Funding Vision 2030
While Saudi Arabia’s banks are viewed as healthy, they may not be able to fully support the financial burden of Vision 2030. Projects are primarily funded by the central government and associated entities, with plans for significant investments post-2025.
Liquidity Improvements and Fixed-Income Market
There are indications of improved liquidity since the beginning of the year, with Saibor easing back from its peak in January. However, borrowing costs in Saudi Arabia remain elevated due to rates in the US, delaying potential ventures into the fixed-income market.