S Arabia sees surge in term deposits, lending, and consumer spending

RIYADH, Nov 11 (Arab News): Saudi banks' money supply saw an 8 per cent year-on-year expansion in September, reaching SR2.66 trillion ($710 billion), according to the Kingdom's central bank, also known as SAMA.
Term deposits, a significant contributor to this growth, recorded a 49.35 per cent increase to come in at SR811.31 billion.
This surge has been consistent since June 2021, with term deposits accounting for an increased proportion of the total money supply, rising from 20 per cent to 30 per cent by September 2023.
Time deposits generally offer more favorable interest rates compared to demand deposits. This can make them particularly appealing to both individuals and businesses especially in an environment of increasing interest rates.
The Gulf region's monetary policy was influenced by the US Federal Reserve's choice to increase interest rates, driven by the goal of reducing high inflation. This impact was particularly significant as most of the region's currencies are pegged to the dollar.
The Fed's latest decision kept its benchmark level at between 5.25 per cent and 5.50 per cent, the result of 11 rate increases unleashed since March 2022. The decision meant Saudi Central Bank will keep its repo rates at the current 6 per cent level.
Shifting to the bank lending side, there was a significant 10 per cent surge during this timeframe, reaching SR2.54 trillion. The most substantial growth was noted in the education, utilities, and professional and technical services sectors.
"It is clear that banks are focusing their lending activities on what is known as 'productive lending' such as education and other productive economic sectors," Talat Zaki Hafez, economic columnist and banking expert commented.
"The education sector has been and is still witnessing great focus from the Saudi government to meet the requirements for newly developed economic sectors, such as AI (artificial intelligence), Internet of Things, cyber security and other sectors," he added.
Although personal loans constituted the largest segment in bank credit, amounting to SR1.23
trillion in September, it did not exhibit an annual growth rate similar to that observed in other corporate sectors.
This category, which covers diverse types of credit provided to individuals, experienced a 7 per cent increase, rising from SR1.15 trillion in September last year.
The surge in government spending in Saudi Arabia has heightened corporations' interest in borrowing, and the adaptability of utilising floating corporate interest rates might be facilitating effective management of interest rate fluctuations.