Saudi Arabia’s money supply grows 7% in November; bank lending hits $690bn

Saudi Arabia’s money supply saw an annual increase of 7.44 percent in November 2023 as it reached SR2.67 trillion ($712 billion), according to the Kingdom’s central bank.

Bank loans surged to SR2.59 trillion, marking a 10.14 percent increase, with the education sector experiencing the most significant growth during this period.

Total bank deposits that include demand, term, and other quasi money deposits reached SR2.46 trillion in November, representing a 7.5 percent yearly rise.

For the 22nd consecutive month, time and saving deposits continue to exhibit the most significant year-on-year growth, recording a 32 percent increase in November at SR838.25 billion. In contrast, demand deposits experienced a modest growth of only 0.37 percent at SR1.33 trillion.

According to a Fitch Ratings release in January, liquidity boost in Saudi Arabia is attributed to a significant rise in deposits from government-related entities, which primarily consist of term deposits, amounting to SR147 billion in the 12 months to October 2023.

The rise in deposits from GREs is likely a result of these entities choosing to place their surplus liquidity with commercial banks instead of the Saudi Central Bank, Fitch Ratings added.

This shift, facilitated through deposit auctions organized by the bank, also known as SAMA, led to a decrease of SR184 billion in GRE deposits at the institution over the first 10 months of 2023, however remained substantial at SR453 billion by the end of October.

The agency foresees that the current trend may persist, further bolstering liquidity in the banking system. However, this comes at an increased cost, as there is a greater reliance on term deposits, subject to higher interest rates in alignment with the trajectory of the Kingdom’s central bank mirroring the US Fed rates.

The loan-to-deposit ratio, a key measure of a bank’s liquidity, stood at 80.62 percent in November, down from 81.31 percent the previous year, and well below the regulatory maximum of 90 percent. This indicates that Saudi banks maintain a comfortable level of liquidity to support their loans portfolio.

Fitch predicts a 10 percent growth in Saudi banking sector financing in 2024, surpassing the Gulf Cooperation Council average of 5 percent. Additionally, the agency forecasts a 10 percent growth in deposits in 2024, primarily driven by term accounts.

Bank loans

Saudi banks allocated 48 percent of their credit to personal loans during this period, growing 6.8 percent to SR1.24 trillion, with the remaining share directed toward various corporate activities.

Despite its smaller share, loans intended for education experienced the highest growth, surging by 40 percent and reaching a total of SR6.19 billion. Following closely, loans for professional, scientific, and technical activities increased by 38.15 percent, reaching SR5.43 billion. The Saudi private school market is positioned for significant expansion, propelled by factors such as increasing wages, demographic shifts, and regulatory reforms, as highlighted in a December report by Colliers, a real estate and investment firm.

In an interview with Arab News in January, Mansoor Ahmed, the executive director for Healthcare and Education at Colliers Middle East and Africa, noted that a key factor propelling the growth of the private K-12 education sector in Saudi Arabia is the convergence of rising incomes, changing demographic profiles, and consistent population expansion.

Comprising the largest student population in the Gulf Cooperation Council region, with nearly 7.5 million school-age children and close to 6 million enrolled students, the market presents significant opportunities for commercial enterprise expansion and investment, according to the report.

Loans for electricity, gas, and water supplies, experienced a growth of 27 percent, totaling SR139.77 billion. Meanwhile, credit extended for financial and insurance activities grew by 20.25 percent, reaching a total of SR107.51 billion.

The notable expansion in this sector can be credited to the Kingdom’s thriving economy, leading to heightened demand for financial services such as loans, investments, and insurance offerings. Private sector loans constituted 94 percent of the total, with the public sector accounting for just under 6 percent.

As articulated by Crown Prince Mohammed bin Salman, the private sector is the most important strategic permanent partner that plays a crucial role in the Kingdom’s success.

This noteworthy involvement is in line with Saudi Vision 2030, the nation’s economic plan, which aims to increase the private sector’s contribution to the gross domestic product from 40 percent to 65 percent.