According to the Kingdom’s central bank, or SAMA, the money supply in Saudi banks grew by 9.21% year over year in October, reaching SR2.94 trillion (USD 782.96 billion). Term deposits, which increased by 15.34% to SR971.1 billion during this time, were a major contributor to this growth.
Despite having a relatively modest growth rate of 8.63%, demand deposits, the largest component of the money supply, accounted for 48.55%, or SR1.42 trillion. SR312.51 billion, or 10.64% of the money supply, was the amount of other quasi-money deposits, which fell by 4.27%.
In October, time and savings deposits made up 33.07% of Saudi Arabia’s total money supply, the highest amount in almost 15 years. Due in large part to SAMA’s alignment of its interest rate policy with that of the United States Federal Reserve, this upward trend has accelerated in recent years.
To optimise returns during this time of high interest rates, depositors were encouraged to switch to interest-earning accounts by the Fed’s tightening cycle, which drove rates to a peak of 6% in July 2022.
Interest-generating accounts became more alluring to Saudi depositors looking for larger returns as a result of this mirrored policy, which was implemented to fight inflation.
Institutional deposits, especially those from government-affiliated organisations, have played a major role in the expansion of term deposits. These organisations were responsible for a significant 70% of all deposit inflows in 2023, according to Fitch Ratings.
In addition to giving banks much-needed liquidity, this calculated move to direct funds into time deposits also demonstrated how bulk deposit agreements with advantageous terms can propel the growth of this market.
Even after the Federal Reserve changed its monetary policy and lowered interest rates by 50 basis points in September and another 25 basis points in November, term deposits in Saudi banks are still growing. Term deposits seem to continue to be preferred by government-affiliated organisations because of their stability and potential for returns.