RIYADH: Saudi banks’ money supply saw an 8 percent year-on-year expansion in September, reaching SR2.66 trillion ($710 billion), according to the Kingdom’s central bank, also known as SAMA.
Term deposits, a significant contributor to this growth, recorded a 49.35 percent increase to come in at SR811.31 billion.
This surge has been consistent since June 2021, with term deposits accounting for an increased proportion of the total money supply, rising from 20 percent to 30 percent by September 2023.
Time deposits generally offer more favorable interest rates compared to demand deposits. This can make them particularly appealing to both individuals and businesses especially in an environment of increasing interest rates.
The Gulf region’s monetary policy was influenced by the US Federal Reserve’s choice to increase interest rates, driven by the goal of reducing high inflation. This impact was particularly significant as most of the region’s currencies are pegged to the dollar.
The Fed’s latest decision kept its benchmark level at between 5.25 percent and 5.50 percent, the result of 11 rate increases unleashed since March 2022. The decision meant Saudi Central Bank will keep its repo rates at the current 6 percent level.
Shifting to the bank lending side, there was a significant 10 percent surge during this timeframe, reaching SR2.54 trillion. The most substantial growth was noted in the education, utilities, and professional and technical services sectors.
“It is clear that banks are focusing their lending activities on what is known as ‘productive lending’ such as education and other productive economic sectors,” Talat Zaki Hafez, economic columnist and banking expert commented.
“The education sector has been and is still witnessing great focus from the Saudi government to meet the requirements for newly developed economic sectors, such as AI (artificial intelligence), Internet of Things, cyber security and other sectors,” he added.
Although personal loans constituted the largest segment in bank credit, amounting to SR1.23
trillion in September, it did not exhibit an annual growth rate similar to that observed in other corporate sectors.
This category, which covers diverse types of credit provided to individuals, experienced a 7 percent increase, rising from SR1.15 trillion in September
The surge in government spending in Saudi Arabia has heightened corporations’ interest in borrowing, and the adaptability of utilizing floating corporate interest rates might be facilitating effective management of interest rate fluctuations.
This could have potentially contributed to a growth in corporate lending compared to retail loans.
The education sector, despite its rather modest share in bank lending relative to other sectors, recorded the highest growth rate in September, surging by 65 percent and reaching approximately SR6 billion compared to the same month last year.
Meanwhile, lending for electricity, gas, and water supplies witnessed a 37.7 percent increase during this timeframe, totaling SR132.7 billion.
Additionally, lending for professional, scientific, and technical activities experienced a 36 percent year-on-year growth, amounting to SR5.4 billion.
During the same period, bank credit to financial and insurance activities surged by 21 percent, totaling SR104.53 billion.
Residential new mortgage loans on the other hand decreased to SR5.8 billion from SR9.9 billion in September last year.
This sector has been following a declining trend in recent months and the data released by SAMA reveals a notable decrease, with figures for September 2023 standing at SR5.8 billion
compared to SR9.9 billion in September 2022.
“I believe there are two main reasons for the decrease. The first one is the noticeable hike in interest rates, as it has witnessed significant increases in 2023 compared to its levels in 2021. The three-month average SAIBOR (Saudi Interbank Offered Rate) increased from as low as 0.8 percent to more than 6 percent in 2023,” Hafez said.
“The second reason is the significant increase in prices of real estate especially in prime locations, adding to it the increase in building material costs due to the global inflation,” he added.
Credit card loans in Saudi Arabia experienced a robust uptick in the third quarter of 2023, marking a 19.76 percent increase compared to the same quarter in the previous year.
Over this period, total credit card loans surged to SR26.5 billion, up from SR22.12 billion.
In Saudi Arabia, the surge in credit card loans was closely intertwined with the growing trend of cashless transactions, particularly through the widespread use of point of sales systems.
The ease of online and card payments may have significantly contributed to the increased adoption of credit card loans, as consumers find these methods more convenient and efficient.
As the Kingdom embraces a digital transformation and transitions towards a cashless society, credit card loans may become a pivotal financial tool for individuals seeking seamless transactions and enhanced purchasing power.
The growth in both credit card loans and POS transactions reflected not only evolving consumer preferences but also the broader economic shift towards digital financial solutions.
POS transactions in September this year amounted to SR50.5 billion, marking a 6.43 percent increase compared to the same month last year.
The data revealed that Saudi consumers allocated a significant portion of their spending to food and beverages, with sales in this category reaching SR8.04 billion in September, showing a 12 percent increase year-on-year.
The restaurant and café sector followed closely, with sales totaling SR7.3 billion, marking an 11 percent growth during the same timeframe.
Miscellaneous goods and services also saw increased spending, amounting to SR5.65 billion, an 8 percent rise from September last year.
Notably, spending on hotels exhibited the highest growth rate; reaching SR1.06 billion, up from SR907.5 million in the same month of 2022.
According to the S&P Global Gulf outlook report for 2023-24 released in July, the elevated consumer price pressures were seen to have impacted purchasing power and hindered private consumption growth in 2022.
However, as inflationary pressures gradually subsided in recent months, it is anticipated that private consumption spending will see an upswing in 2023 according to the report. It added that the acceleration of real private consumption growth was also linked to increased consumer spending in Saudi Arabia, influenced by evolving consumer patterns and the recovery of religious tourism.