Saudi Arabia:

RIYADH: Saudi banks’ money supply hit record levels in May, reaching SR2.825 trillion ($753.31 billion) after seeing an annual increase of 8.56 percent, official data showed.

According to the analysis released by the Saudi Central Bank, also known as SAMA, this represented a rise of more than SR222.93 billion compared to the same period last year.

These liquidity levels strongly support economic and commercial activity, contributing effectively to the economic development process and enabling the achievement of the goals of Saudi Vision 2030. This reflects the strength and solidity of the banking and financial sector.

This surge was mainly fueled by an 23.4 percent increase in banks’ term and savings accounts, which reached SR889.55 billion.

These deposits represented the second-largest portion, comprising 31.4 percent of the total money supply, following demand deposits, which constituted 49.2 percent at SR1.390 trillion.

On the other hand, quasi-money holdings comprised 11.1 percent of the total, experiencing an annual 6.3 percent decrease during this period.

Meanwhile, currency outside banks accounted for an 8 percent share, reflecting an 8.85 percent growth.

Quasi-money deposits include residents’ deposits in foreign currencies, deposits against letters of credit, outstanding transfers, and repurchase agreements entered into by banks with the private sector.

At the end of January, the money supply was valued at SR2.720 trillion. It also increased by roughly 1.2 percent per month, totaling SR32.402 billion, compared to SR2.793 trillion at the end of April of the same year, the Saudi Press Agency reported.

It is noteworthy that during 2022, SAMA raised key policy rates seven times, followed by an additional four increases in 2023.

The central bank’s repo rate was last raised by 25 basis points to 6 percent in its July 2023 meeting, marking its highest level since 2001. Since then, rates have remained unchanged.

Meanwhile, US inflation surged to a six-month high in March, prompting investors to delay their expectations for Federal Reserve rate cuts.

Deposits represent a costly funding source for banks, with heightened competition in the financial market significantly driving up their average cost.

Despite this, the surge in interest rates also strengthened Saudi banks’ profits on the asset side. Higher borrowing rates led to increased income, offsetting the challenges posed by the expensive funding environment.