Skyrocketing Cash Reserves in Saudi Arabia Reach $824bn Due to Public's Preference for High-Interest Savings Accounts
In the banking landscape of Saudi Arabia, a notable change has taken place in 2023, with the money supply M3 reaching an impressive SR3.09 trillion ($824.3 billion) in May, marking a significant 9.39% year-on-year increase. This expansion in liquidity within the banking system is one of the key factors contributing to the rise in Saudi banks' money supply M3.
One of the most striking trends emerging from this growth is the shift in depositor preferences towards term deposits. Savers are increasingly locking their funds into these products to benefit from the higher interest rates they offer. Term deposits have grown at the fastest pace among all money categories, reflecting the current high-interest-rate environment.
This shift is evident in the rise in the share of time and savings deposits, which now account for around 35.16% of the total M3 money supply, close to a 16-year peak. This indicates a clear preference for interest-bearing accounts among Saudi savers.
On the other hand, demand deposits, or funds immediately available in checking accounts, have seen a slight decrease in their share. Although they still remain the largest component of M3, depositors are opting more for interest-yielding products like term deposits.
Concurrently, private bank lending has increased significantly, and the government’s issuance of sukuk with attractive returns reflects growing demand for low-risk, interest-bearing savings instruments. This dynamic supports the overall trend of increased liquidity and shifting depositor behavior towards term deposits.
The Saudi Arabian Monetary Authority (SAMA) has mirrored the US Federal Reserve's moves to maintain the currency peg, pushing Saudi interest rates to multi-year highs. In response, banks in Saudi Arabia are competing for deposits by offering better returns on time accounts.
In summary, the increase in Saudi banks’ M3 money supply is driven by strong liquidity growth, partially fueled by economic conditions such as rising local spending and investment. Meanwhile, the shift towards term deposits is principally motivated by the attractive returns offered amid higher interest rates, encouraging savers to move funds out of readily available demand deposits into longer-term, interest-bearing accounts.
- In the realm of art, the influx of funds into term deposits in Saudi Arabia's banking system could potentially affect the local art market, providing more capital for investment and patronage.
- The rise in private bank lending and government sukuk issuance with attractive returns, as seen in the news, suggests an investment opportunity in the Saudi economy, particularly for those interested in personal-finance and investing.
- Amidst the increasing trend of term deposits, environmental concerns have emerged, as some question the environmental impact of high liquidity and intensive banking activities on the Saudi Arabian environment.
- The technological sector could benefit from the increased liquidity in the Saudi banking system, with more funds available for venture capital investments and technological advancements.
- As the Saudi Arabian Monetary Authority (SAMA) maintains the currency peg and pushes interest rates to multi-year highs, financial experts suggest that this could have broader implications for the country's business and economy.
