Arab News, Mon, Apr 08, 2024 | Ramadan 29, 1445
Deposits at Saudi banks increased 10.26% in February
Saudi Arabia:
Saudi banks’ total deposits reached SR2.54 trillion ($677 billion) in February,
marking a 10.26 percent increase from the same month last year, the official
data showed.
Analysis conducted on the data released by the
Saudi Central Bank confirmed that growth was primarily fueled by a 26 percent
annual increase in time and savings deposits, which reached SR838.53 billion.
Demand reserves also saw a 2.85 percent rise
during this period, totaling SR1.25 trillion, while other quasi-money increased
by 7.57 percent, reaching SR352 billion.
Demand deposits constitute the highest share at 53
percent, slightly down from 57 percent a year ago. This shift is a result of the
increasing popularity of term reserves due to rising interest rates, making this
account category more attractive to clients seeking higher income-generating
holdings.
However, term deposits experienced a 3 percent
decrease month-on-month, the first decline in 18 months.
The rising interest rate bolstered the popularity
of term deposits during this period, as they were increasing in alignment with
the US Fed rates as part of recent monetary policy efforts to combat inflation.
However, this upward trend appears to be approaching its end, given the Fed’s
decision to maintain rates unchanged in their latest meeting in March. The last
hike took place in July 2023.
Meanwhile, Saudi Arabia has displayed remarkable
resilience and stability in managing inflation. This success can be credited to
the steadfast implementation of robust government policies aimed at safeguarding
the economy. However, the country’s currency pegged to the US dollar means the
central bank closely follows the Fed interest rate movement.
Among term deposits, the segment that witnessed
the highest growth was from businesses and individuals, increasing by 36 percent
during this period to reach SR450 billion. In contrast, government entities saw
a rise of 16.4 percent, reaching SR388.15 billion.
Despite the increase in bank deposits, the growth
in loans has exceeded the liability side, putting pressure on the support for
the expanding local economy.
MEED Projects, a Dubai-based analysis firm,
forecasts that Saudi Arabia will need $640 billion for construction spending
over the next five years, based on current project pipelines.
This implies that banks potentially have to raise
nearly $384 billion over this period if they fund 60 percent of the initiatives
through increased deposits and debt.
Although the growth in Saudi Arabia’s reserves
remains a key funding source, about 15 percent of the required amount may have
to be sourced from debt, according to Edmond Christou, a senior financial
analyst at Bloomberg Intelligence, in an April report. This could mean issuing
new debt of approximately $11.5 billion annually.
Christou also noted that financial institutes
currently need more liquidity to fully support the significant construction
needs, but they anticipate gathering more deposits and accessing the
international debt market.
Debt issuance is already increasing, with
approximately $6.8 billion sold just this year, compared to $5.4 billion for the
entire previous year, as reported by Bloomberg Intelligence.
Despite the ambitious funding needs, the balance
sheets of Saudi Arabia’s banks are generally viewed as healthy, according to the
report. S&P Global Ratings categorizes most major lenders as investment grade
with a stable outlook. However, S&P also points out that these financial
institutions will not be able to carry the full financial burden of Vision 2030,
the country’s long-term economic development plan.
According to Bloomberg’s report, projects are also
largely funded by the central government and associated entities. The
well-financed Public Investment Fund has announced intentions to invest $70
billion annually after 2025 and is considering its own fundraising strategies.
The analysis indicated there is still some time
before banks venture into the fixed-income market, especially as liquidity has
been showing signs of improvement since the beginning of the year.
This is evidenced by Saibor, a significant
indicator of borrowing costs in Saudi Arabia, easing back from the 6.4 percent
peak in January. However, it remains considerably above 6 percent due to
elevated rates in the US.