Saudi Arabia’s money supply increased by 9.21% year on year in October, reaching SR2.94 trillion ($783 billion), according to the Kingdom’s central bank (SAMA). This growth was primarily driven by a significant rise in term deposits.
Strong Growth in Term Deposits
Term deposits surged by 15.34%, reaching SR971.1 billion. This growth played a major role in the overall increase in money supply. Demand deposits, the largest component of the supply, grew by 8.63% to SR1.42 trillion, accounting for 48.55% of the total money supply.
In contrast, quasi-money deposits, which make up 10.64% of the total supply, decreased by 4.27%. These deposits totaled SR312.51 billion.
Highest Level of Time and Savings Deposits in 15 Years
Time and savings deposits reached 33.07% of Saudi Arabia’s money supply in October, the highest in nearly 15 years. This upward trend accelerated due to SAMA’s policy alignment with the US Federal Reserve. The Fed’s rate hikes, which peaked at 6% in July 2022, encouraged depositors to invest in interest-earning accounts.
Even as the Federal Reserve shifted to a monetary easing stance, Saudi term deposits continued to grow. The Fed’s rate cuts in September and November did not deter institutional investors, particularly government-linked entities, from opting for term deposits. These deposits provide stability and attractive returns, especially in an uncertain macroeconomic environment.
Government-linked Entities Drive Growth
In 2023, government-related entities contributed 70% of total deposit inflows, according to Fitch Ratings. This strategic investment in time deposits provided banks with essential liquidity.
The ongoing appeal of term deposits may also be attributed to the interest rate lag. As lower benchmark rates take time to filter into the domestic banking system, term deposits remain competitive. This ensures their continued attractiveness to depositors, despite shifting monetary policies.
Banks Maintain Strong Profitability
Saudi banks have managed to maintain strong profitability, with positive results in 2023 and 2024. According to Fitch Ratings, this strength is expected to continue throughout 2024. The Kingdom’s high operating environment score of bbb+ further supports the resilience of its banking sector.
