Interpreting Middle East Economic News and Analyzing Market Trends

Saudi bank deposits hit record, but this may not be a good sign

Saudi Riyal

Saudi bank deposits hit a fresh record in the first quarter this year rising to SR 1.36 trillion ($363 billion) for the first time.  While there is good news in this, it may not be as good as it seems at first.

 

 

Saudi bank deposits posted a new record of SR1.36 trillion by the end of first quarter of 2013. The expansion in credit portfolios was facilitated by this enormous depositary base. Demand deposits remain the main beneficiary given the globally suppressed interest rate environment, according to a report by the National Commercial Bank (NCB).

NCB’s customer deposits, the largest in the market, reached SR276.7 billion in March 2013 with a growth rate of 11.6 percent Y/Y. Al-Rajhi Bank came second, almost doubled that growth rate of NCB at 20.9 percent, reaching SR231.7 billion. As an Islamic bank, Al-Rajhi Bank has benefited the most from customers’ preference for non-interest bearing deposits.

During the first quarter of this year, demand deposits rose by 18.0 percent Y/Y, while time and savings deposits only grew by 5.3 percent annually. Further-more, foreign currency deposits remained on an upside trajectory in line with 2011, expanding by 17.0 percent Y/Y during 2012.

Despite the redeployment of assets and the expansion in financing portfolios, banks remain relatively liquid albeit at a relatively lower capacity than before. SAMA’s (Saudi Arabian Monetary Agency’s) supervision directed banks to shield themselves from potential external shocks amidst the financial crisis. The large influx of oil revenues has aided banks in increasing the most liquid form of assets, cash, as the cash ratio increased to 12.5 percent by the end of 2012, in comparison to 11.7 percent for 2011.

However, upon rising local financing opportunities, cash ratio decreased to 10.3 percent in the first quarter of 2013.

The NCB report said, banks have extended SR153.0 billion in additional financing during last year. Over the first quarter of 2013, Saudi banks have expanded by a further SR40.2 billion.

Demand deposits is mostly contributed by businesses and individuals, while time and savings deposits is mostly sourced from government entities, indicative of the medium to long-term investment horizon of the government. Banks will soon opt to attract more deposits from customers to keep their positions liquid and avoid any limitations by SAMA, the NCB report said.

Read the full story from Arab News.

The relatively high growth in deposits can also be an indicator of depositors’ increasing fear and uncertainty that’s circulating global markets.  Rather than invest this cash into more productive areas, depositors are choosing to keep cash.  This is not a good sign.  From the article above, demand deposits and foreign currency deposits rose fastest, 18% and 17% respectively.  While time deposits rose by 5.3%.  The holders of time deposits and foreign currency deposits tend to be businesses and individuals as noted above.

So while this may seem to be good news, we see it as increasing uncertainty and fear in the market.  This is primarily due to turmoil in the region (i.e. Egypt) and uneven economic data coming out of the US, Europe and Asia.