RIYADH: Total deposits in Saudi banks reached 2.54 trillion riyadh ($677 billion) in February, an increase of 10.26% year-on-year, according to official data.
An analysis of data released by the Saudi Central Bank confirmed that growth was mainly driven by a 26% annual increase in fixed deposits and savings deposits, which amounted to 838.53 billion riyals.
During this period, demand reserves also increased by 2.85%, totaling SR1.25 trillion, while other quasi-currencies increased by 7.57%, reaching SR352 billion.
Demand deposits accounted for the highest share at 53%, down slightly from 57% in the previous year. This change is a result of the increased popularity of term reserves due to rising interest rates, making this account category more attractive to customers seeking higher yielding holdings.
However, term deposits decreased by 3% from the previous month, the first decrease in 18 months.
Rising interest rates made term deposits more popular during this period, as they were increasing in line with the US Federal Reserve's interest rates as part of recent monetary policy efforts to combat inflation. However, this upward trend appears to be nearing an end, given the Fed's decision to keep interest rates on hold at its most recent meeting in March. The last increase was in July 2023.
Meanwhile, Saudi Arabia has shown remarkable resilience and stability in managing inflation. This success can be attributed to the steady implementation of strong government policies aimed at protecting the economy. But the country's currency is pegged to the U.S. dollar, which means the central bank is closely monitoring Fed interest rate movements.
Among fixed deposits, companies and individuals had the highest growth, increasing by 36% to R450 billion over the period. In contrast, government agencies increased by 16.4%, reaching 388.15 billion riyals.
Despite increases in bank deposits, loan growth is outpacing debt, straining support for growing local economies.
Dubai-based analytics firm MEED Projects predicts that based on the current project pipeline, Saudi Arabia will need $640 billion in construction spending over the next five years.
This means that if banks funded 60% of their efforts through deposits and increased debt, they would potentially have to raise nearly $384 billion during this period.
Edmund Crist, senior financial analyst at Bloomberg Intelligence, said in an April report that while Saudi Arabia's growing foreign exchange reserves remain an important source of funding, about 15% of its needs must come from debt. He said that there is a possibility that it will not happen. This could mean about $11.5 billion in new bond issuance per year.
Crist also said that while financial institutions currently need more liquidity to fully support large-scale construction demand, he expects to attract more deposits and access international bond markets. he pointed out.
Bond issuance is already on the rise, with about $6.8 billion issued this year alone, compared with $5.4 billion all of last year, Bloomberg Intelligence reported.
Despite ambitious capital requirements, Saudi banks' balance sheets are generally considered healthy, according to the report. S&P Global Ratings classifies most large financial institutions as investment grade, with a stable outlook. However, S&P also notes that these financial institutions cannot shoulder the entire financial burden of Vision 2030, the country's long-term economic development plan.
The project is also largely funded by the central government and related organizations, Bloomberg reports. The cash-rich Public Investment Fund has announced intentions to invest $70 billion a year starting in 2025 and is considering its own funding strategy.
The analysis showed that banks still have some time to enter the bond market, especially as liquidity has shown signs of improvement since the beginning of the year.
This is evidenced by the fact that Cybor, a key measure of Saudi Arabia's borrowing costs, has fallen from a peak of 6.4% in January. But rising interest rates in the US still puts him well above 6%.
