KSA banks’ deposits reach $677b in Feb, reflecting economic resilience

RIYADH, Apr 07 (Arab News): Saudi banks' total deposits reached SR2.54 trillion ($677 billion) in February, marking a 10.26 per cent increase from the same month last year, the official data showed.
Analysis conducted on the data released by the Saudi Central Bank confirmed that growth was primarily fueled by a 26 per cent annual increase in time and savings deposits, which reached SR838.53 billion.
Demand reserves also saw a 2.85 per cent rise during this period, totaling SR1.25 trillion, while other quasi-money increased by 7.57 per cent, reaching SR352 billion.
Demand deposits constitute the highest share at 53 per cent, slightly down from 57 per cent a year ago. This shift is a result of the increasing popularity of term reserves due to rising interest rates, making this account category more attractive to clients seeking higher income-generating holdings.
However, term deposits experienced a 3 per cent decrease month-on-month, the first decline in 18 months.
The rising interest rate bolstered the popularity of term deposits during this period, as they were increasing in alignment with the US Fed rates as part of recent monetary policy efforts to combat inflation. However, this upward trend appears to be approaching its end, given the Fed's decision to maintain rates unchanged in their latest meeting in March. The last hike took place in July 2023.
Meanwhile, Saudi Arabia has displayed remarkable resilience and stability in managing inflation. This success can be credited to the steadfast implementation of robust government policies aimed at safeguarding the economy. However, the country's currency pegged to the US dollar means the central bank closely follows the Fed interest rate movement.
Among term deposits, the segment that witnessed the highest growth was from businesses and individuals, increasing by 36 per cent during this period to reach SR450 billion. In contrast, government entities saw a rise of 16.4 per cent, reaching SR388.15 billion.
Despite the increase in bank deposits, the growth in loans has exceeded the liability side, putting pressure on the support for the expanding local economy.
MEED Projects, a Dubai-based analysis firm, forecasts that Saudi Arabia will need $640 billion for construction spending over the next five years, based on current project pipelines.
This implies that banks potentially have to raise nearly $384 billion over this period if they fund 60 per cent of the initiatives through increased deposits and debt.
Although the growth in Saudi Arabia's reserves remains a key funding source, about 15 per cent of the required amount may have to be sourced from debt, according to Edmond Christou, a senior financial analyst at Bloomberg Intelligence, in an April report.