Time and savings deposits reach their highest levels in nearly 15 years, reflecting a shift towards interest-bearing accounts amidst changing global monetary trends

Saudi Arabia’s money supply soared by 9.21% year-on-year in October, hitting SR2.94 trillion ($782.96 billion), according to the Saudi Central Bank, SAMA. This rise underscores the Kingdom’s growing financial depth and the strategic shift towards interest-earning accounts driven by local and global monetary dynamics.

Time and savings deposits emerged as a standout category, accounting for 33.07% of the total money supply—their highest level since 2009. These deposits surged by 15.34% to SR971.1 billion, spurred by institutional inflows, particularly from government-related entities. In contrast, demand deposits, which comprise 48.55% of the money supply, saw a moderate growth rate of 8.63%, totalling SR1.42 trillion. Quasi-money deposits, representing 10.64% of the total, declined by 4.27%, settling at SR312.51 billion.

The shift towards term deposits was largely influenced by SAMA’s interest rate policy, which mirrored the US Federal Reserve’s tightening cycle. When the Fed pushed rates to a peak of 6% in 2022 to combat inflation, Saudi depositors increasingly sought interest-generating accounts to maximise returns. Despite the Fed’s recent rate cuts—50 basis points in September and another 25 in November—term deposits in the Kingdom have maintained their appeal, reflecting their stability and return potential.

Government-linked institutions played a pivotal role in this trend. Fitch Ratings noted that 70% of deposit inflows in 2023 came from these entities. Their preference for term deposits, driven by bulk deposit agreements with favourable terms, provided banks with a critical liquidity boost. This strategic inflow has enabled Saudi banks to navigate liquidity pressures effectively while ensuring operational stability.

The lag in transmitting lower benchmark rates to domestic banking systems has also contributed to the sustained competitiveness of deposit rates. This delay has allowed time and savings accounts to remain attractive even as monetary policies shift towards easing.

While time and savings deposits are considered a costlier funding source due to their interest obligations, Saudi banks have continued to report robust financial performance. Strong profitability metrics, coupled with favourable macroeconomic conditions, have ensured stability across the sector. Fitch Ratings projects this resilience to persist, supported by the Kingdom’s high operating environment score of bbb+, the strongest among Gulf Cooperation Council nations and emerging markets globally.

The ongoing transformation of Saudi Arabia’s financial landscape aligns with Vision 2030, which seeks to diversify the economy and strengthen its non-oil sectors. The surge in deposits and the stability of the banking sector reflect the Kingdom’s ability to adapt to global monetary shifts while fostering economic growth.