MACRO WATCH – Middle East & Africa: Saudi Arabia’s banking system was lately listed among the safest in the world by Standard & Poor’s, which believes that the country’s banks ’have adequate lending practices and underwriting standards, as well as a good track record in maintaining strong asset quality indicators‘. Also, the Basel Core Principles assessment confirmed the Saudi banking system’s high degree of compliance with international best practices.
Deposits Increase Despite the Drop in Interest Rates
Chart provided by: CEIC
Generally, a significant drop in deposit rates encourages savers to go for liquidity rather than limited return from time deposits and other quasi money. However, due to the safety of the Saudi banking system, deposits have been increasing with demand deposits taking the lead. Business units and individuals constitute about 95% of the total demand deposits pooled into Saudi banks, and the government entities’ share doesn’t exceed 5% even though the government has been achieving huge budget surpluses. The short-term interest rate has been less than 1% for the last couple of years, which in turn stimulated short-term bank loans, while medium-term and long-term loans increases have been relatively mild.
The resulting high liquidity held by the banking sector strengthened it enough to absorb external shocks such as that of global financial crisis and prolonged periods of low oil prices.
By Eman El Kafrawy in Egypt – CEIC Analyst