Arab News, Mon, Mar 04, 2024 | Shaban 23, 1445
Saudi banks’ money supply surges 10% to reach $726bn in January
Saudi Arabia:
Saudi Arabia’s money supply surged 10 percent in January to reach SR2.72
trillion ($726 billion), the central bank data showed.
The growth was primarily driven by a substantial
rise in banks’ term and savings accounts, which recorded a rise of 31 percent to
reach SR864.32 billion. The overall figure, however, also includes currency
outside banks, demand deposits, and other quasi-money deposits.
Since the Saudi riyal is pegged to the US dollar,
the rise in interest rates is also seen as a source of motivation for depositors
who want to pursue more profitable avenues particularly term deposits known for
their higher-yielding nature.
Fitch Ratings also noted that the liquidity boost
in Saudi Arabia could be linked to a significant rise in funds from
government-related entities.
According to the agency, the rise in these GRE
accounts suggests that these entities chose to invest their surplus liquidity in
higher income-generating deposits with commercial banks, rather than with the
Saudi Central Bank, also known as SAMA.
It highlighted that these deposits serve as an
expensive source of funding for banks, which has significantly increased the
average cost of funding due to heightened competition in the financial market.
Reflecting on the changes, demand deposits, which
constituted a 53 percent share of the money supply a year ago, now stand at
48.42 percent, with a growth rate of only 1 percent during this period.
Despite the elevated cost of funding for Saudi
banks, the increase in interest rates also bolstered profits on their asset
side, as higher borrowing rates resulted in greater income.
Based on data from Bloomberg compiled by Arab
News, the net income of listed Saudi banks surged by 12 percent annually in
2023, reaching SR69.96 billion.
Among these, the Saudi National Bank held the
largest share at 29 percent, equivalent to SR20 billion. Notably, the most
significant growth in net income was observed in Saudi Awwal Bank, with profits
soaring by 45 percent to reach SR7 billion.
During 2022, SAMA increased key policy rates seven
times followed by an additional four times in 2023. In its July 2023 meeting,
the central bank last raised its repo rate by 25 basis points to 6 percent,
reaching its highest level since 2001. This move was in line with the measures
taken by the US Federal Reserve as part of its efforts to combat inflation.
Saudi Arabia has nevertheless demonstrated
exceptional resilience and stability in managing inflation. This success can be
attributed to the steadfast implementation of robust government policies
designed to safeguard the economy.
Central to this stability is the Saudi Consumer
Protection Association, a vigilant guardian of fair pricing practices for
essential goods and services. The Kingdom’s strong regulatory framework ensures
that consumers are shielded from unwarranted price escalations, fostering an
environment conducive to business.
Furthermore, Saudi Arabia’s commitment to social
welfare is evident in its comprehensive policies. The Kingdom has strategically
invested in initiatives such as subsidies on essential goods, affordable housing
schemes, quality education programs, and accessible healthcare services.
A prime example of this commitment is the Citizen
Account Program, a cornerstone of support for low- and mid-income families.
Through this program, the government provides crucial cash transfers,
alleviating the financial strains caused by the rising cost of living.
In January, Saudi Arabia maintained stable
inflation at 1.6 percent, holding steady from December 2023, as reported by the
General Authority of Statistics.
The primary driver of the inflation rate was the
cost of rent, given their significant weight of 21 percent in the Saudi consumer
basket.
Nevertheless, according to data from Trading
Economics, the Kingdom ranked the second-lowest among G20 countries in terms of
inflation, following Switzerland, which recorded a rate of 1.3 percent.
Looking ahead, Fitch Ratings anticipates that the
cost of funding will continue to be sensitive to shifts in the Fed rate.
However, the agency expects the average net interest margin, a crucial measure
of banks’ core profitability, to stay at approximately 3 percent.
Fitch also projects a 10 percent growth in
deposits for 2024, driven primarily by term accounts. The proportion of demand
deposits will likely decrease, falling below 50 percent of total deposits.
The agency’s predicted Saudi banking sector
financing growth stood at 10 percent in 2024, well above the Gulf Cooperation
Council average of 5 percent but down from an estimated 12 percent in 2023 and
14 percent in 2022.