Saudi banks’ money supply increases 9% in June to reach $773bn

Saudi banks’ money supply rose 9 percent in June compared to the same month of 2023 to reach SR2.9 trillion ($773 billion), official data showed.

According to figures released by the Saudi Central Bank, also known as SAMA, the increase was mainly fueled by a 17.32 percent surge in the institutions’ term and savings accounts, which reached SR903.71 billion.

These represented the second-largest portion of the total money supply, accounting for 31 percent, while demand deposits made up the largest share at 49 percent.

These products increased by 7 percent during this period, reaching SR1.42 trillion.

Other quasi-money holdings, which include foreign currency deposits, marginal payments for letters of credit, outstanding remittances, and bank repo transactions with the private sector, comprised 12 percent of the total money supply. This category saw a slight increase of 0.32 percent during the period.

Currency outside banks held an 8 percent share of the money supply, growing by 4 percent.

Most Gulf Cooperation Council countries, including Saudi Arabia, peg their currencies to the US dollar to avoid currency fluctuations and eliminate uncertainties in international transactions.

Consequently, interest rates in these countries have mirrored the trends set by the US Federal Reserve.

This month marks the one-year anniversary of the Fed’s latest interest rate hike, which pushed rates to their highest point in 23 years.

The most recent rate increase occurred in July 2023, elevating the benchmark rate to its current level.

Starting in early 2022, the Fed moved to counteract the highest inflation in 40 years, peaking at 9.1 percent in June 2022, before dropping to around 3 percent annually.

With inflation cooling, economists are now speculating about when the central bank might start cutting rates, with the Fed set to announce its latest move at 9 p.m. Saudi time on July 31.

In July, Fitch Ratings noted that the high financing growth in recent years has intensified competition for liquidity in the Kingdom.

Despite strong growth in government-related entity deposits at banks over the second half of 2023 and the first quarter of 2024, these funds are primarily in the form of expensive term deposits.

As a result, the proportion of GRE accounts in total sector deposits has reached an all-time high of 32 percent. Fitch expects them to continue growing, further diluting the proportion of Current Account Savings Account in the funding mix, thereby keeping Saudi banks’ average net financing margin stable.

According to Fitch, Saudi banks are projected to grow at about double the GCC average, with financing growth forecasted at approximately 12 percent for 2024.

The sector is likely to increase its focus on corporate financing, which is expected to account for about 60 percent of new originations in 2024, according to the agency.