Deposits in the Saudi Financial Market: Concepts and Trends

In the financial context, deposits refer to the funds deposited by customers, whether individuals or companies, with banks or financial institutions, either for safekeeping or for investment over short or medium terms. In the Saudi financial market, individual and corporate deposits form the foundation upon which banks' activities of financing loans and credit facilities are built, and they are subject to the supervision of the Saudi Arabian Monetary Authority (SAMA) and the Capital Market Authority.

Customer deposits are typically divided into current accounts (demand deposits), savings accounts, fixed or term deposits, in addition to investment accounts compliant with Islamic banking principles such as Mudarabah and Murabaha. Saudi banks, both conventional and Islamic, hold the largest share of these deposits.

Deposits play a crucial role in the stability of the banking system, representing a primary source of financing for loans and investments, with a portion held as a mandatory reserve at the central bank. The importance of deposits is also highlighted by the deposit insurance system that protects depositors' funds and enhances their confidence in banks, encouraging savings and contributing to economic growth.

Several types of deposits are available in Saudi banks, differing in their characteristics, holding periods, and expected returns:

1. Current Accounts (Demand Deposits): Allow for the freedom to withdraw and deposit at any time without time restrictions, and are often interest-free or offer minimal interest. They are primarily used for managing daily liquidity.

2. Savings Accounts: Combine ease of withdrawal and deposit with a modest return (interest), but may have some restrictions on repeated withdrawals. They are usually suitable for individuals looking to save while benefiting from a low return.

3. Term Deposits (Fixed): The customer deposits a specific amount for an agreed-upon period (from a month to several years), receiving a higher interest compared to current and savings accounts, but with restrictions on withdrawal before the term ends.

4. Islamic Investment Accounts: Such as Mudarabah or Murabaha accounts, where the money is invested according to Islamic law, and profits are distributed between the customer and the bank based on pre-agreed ratios.

The distribution of these types varies between individuals and companies: individuals prefer current and savings accounts for flexibility, while companies tend to favor term deposits to benefit from higher returns.

According to reports from the Saudi Arabian Monetary Authority (SAMA), the total volume of bank deposits in Saudi banks reached approximately 2.0 trillion Saudi Riyals by the end of 2024. These deposits have experienced an average annual growth rate of between 3% and 5% compared to 2023.

The qualitative distribution of deposits shows that current accounts constitute about 40% of individual deposits, savings accounts about 35%, while term deposits represent 25%. Corporate deposits are more evenly distributed between term deposits and demand deposits.

On the other hand, bank credit facilities (loans) increased by 8-10% during 2024, supported by the growth in deposits. The mandatory reserve ratio for banks remained stable at 3% for current accounts and 4% for savings and term deposits, supporting the liquidity and stability of the banking sector.

As for deposit returns, they have gradually increased with the rise in global and local interest rates, with interest on fixed deposits ranging between 4% and 5% annually by the end of 2024.

Customer deposits are the primary source upon which banks rely for financing loans and credit products. The greater the volume of deposits available to a bank, the more it can extend credit facilities to individuals and companies.

In 2024, the growth in bank deposits led to a noticeable increase in the volume of bank loans, especially with rising demand for mortgage financing, small and medium enterprise financing, and consumer loans. This illustrates the vital role of deposits in supporting economic activities and enhancing consumption and investment in Saudi Arabia.

With a relatively low mandatory reserve ratio (3%-4%), banks retain the majority of customer deposits as available liquidity for lending, while the mandatory ratio is deposited with the central bank to ensure financial stability. SAMA monitors the balance between loans and deposits to ensure that the loan-to-deposit ratio does not exceed dangerous levels that could affect liquidity.

Bank deposits in Saudi Arabia are subject to strict regulations by the Saudi Arabian Monetary Authority (SAMA) and the Capital Market Authority. SAMA requires banks to maintain a portion of customer deposits as a mandatory reserve and mandates them to meet capital adequacy and liquidity standards to ensure their ability to meet withdrawal requests at any time.

Among the most important recent regulatory developments is the launch of the bank deposit insurance system in 2024, under which the National Deposit Insurance Corporation was established. This system guarantees each depositor in any Saudi bank the recovery of up to 500,000 Saudi Riyals in the event of bank failure, enhancing confidence in the banking system and encouraging savings.

Banks are also required to disclose deposit data in their quarterly and annual reports and are subject to periodic oversight by regulatory authorities to ensure compliance with established standards and policies.

The year 2024 witnessed a gradual increase in local interest rates, influenced by decisions from global central banks, notably the U.S. Federal Reserve. This increase directly reflected on deposit returns in Saudi banks, as banks raised interest rates on fixed deposits to attract more savings.

The interest on some short-term fixed deposits (from 6 months to a year) reached approximately 4%-5% annually by the end of 2024, compared to 3%-4% at the beginning of the year. Banks are competing to offer various deposit promotions to attract customers, especially with the rise of digital products and investment alternatives.

It is expected that deposit return rates will continue to fluctuate throughout 2025, depending on SAMA's policies and movements in international financial markets, necessitating customers to monitor offers and evaluate the different options available to them.

The Saudi banking sector is classified among the strongest in the region in terms of capital adequacy, liquidity, and the ability to attract deposits. The sector is under intensive supervision and oversight from SAMA and the Capital Market Authority, and it enjoys a high level of Tier-1 capital, enhancing its ability to absorb financial shocks.

The loan-to-deposit ratio typically remains below 100%, an indicator of banks' ability to meet withdrawal requests without affecting financial stability. The implementation of the deposit insurance system has also contributed to reducing the risks of bank runs and bolstering customer confidence.

On the other hand, the sector faces challenges related to fluctuations in interest rates and the emergence of financial technology (FinTech) companies offering innovative savings alternatives, which compels banks to continuously develop their services to maintain their market share.

Several major banks in Saudi Arabia compete to attract customer deposits by offering diverse products and advanced digital services. Among the prominent competitors are:

- National Commercial Bank (NCB): The largest in terms of assets and deposit market share.
- Riyad Bank: Known for its diverse deposit programs and advanced financial computing.
- Al Rajhi Bank: Focuses on Sharia-compliant products and attracting a wide customer base.
- Saudi French Bank, Alinma Bank, Bank Albilad: Offer competitive deposit and savings account promotions.
- Foreign banks operating in the Saudi market: Such as SABB and new digital banks.

These banks are striving to develop digital products, improve service quality, and offer interest promotions and rewards to attract more savings.

In recent years, FinTech companies have entered the Saudi market, leading to the introduction of innovative digital solutions in deposit management. Some digital banking platforms have launched savings accounts with competitive returns and the ability to open accounts remotely via smartphones.

These companies aim to simplify the customer experience, offering features such as instant balance tracking, savings management, and access to digital offers. Some banks have collaborated with FinTech companies to provide joint services, such as creating term accounts or linking customer accounts to digital reward systems.

This trend enhances competition in the deposit sector and drives traditional banks to adopt innovation strategies and continuously improve their products and services.

In 2024, Saudi Arabia launched the National Deposit Insurance Corporation, aimed at protecting depositors' funds against the risks of bank failures. The system covers each depositor up to 500,000 Saudi Riyals in each bank, enhancing customer confidence and encouraging savings.

The insurance applies to all eligible account types, including individuals and small to medium-sized enterprises. In the event of any bank facing financial distress, the depositor has the right to claim their funds up to the guaranteed maximum.

This system aligns with international standards for protecting savers and reduces the likelihood of sudden withdrawals, supporting financial stability in the Saudi banking sector.

The period between 2024 and 2025 was marked by several significant developments in the deposit sector:

- Launch of the bank deposit insurance system in April 2024, covering up to 500,000 Riyals for each depositor.
- Increase in local interest rates in line with global monetary policies, leading to higher bank deposit returns.
- Introduction of new digital products by banks, such as highly liquid digital accounts and facilitating account openings via apps.
- Extensive awareness campaigns on the importance of saving and the safety of deposits, particularly targeting youth and women.
- Reduction of the mandatory reserve ratio for certain types of deposits to stimulate lending and increase liquidity in the banking sector.
- Strong financial results for major banks, with growth in the deposit base and increased savings rates among individuals.

These developments reflect the dynamism of the market and the commitment of regulatory authorities and banks to enhance the banking sector and protect customer funds.

Given the absence of a listed company named 'Deposits' in the Saudi market, we can benefit from typical banking data representing the sector:

- Current stock price (hypothetical for a large bank): 45 Saudi Riyals.
- Market capitalization: approximately 103.5 billion Riyals (based on 2.3 billion shares).
- Price-to-earnings ratio (P/E): 9 (if earnings per share are 5 Riyals).
- Cash dividend yield: 6.7% (3 Riyals per share distribution).
- Revenue growth in Q3 2024: 10% compared to the same period in 2023.
- Net profit growth in the same period: 8%.

These indicators reflect strong performance in the banking sector in Saudi Arabia, thanks to deposit growth and benefiting from rising interest rates.

Bank deposits are a popular savings option due to their safety, liquidity, and availability of regular returns, especially after the implementation of the deposit insurance system. However, customers should consider several factors:

- Rate of return: Affected by interest rates and monetary policies, and may change over time.
- Inflation: May impact the real value of savings if the rate of return is lower than the inflation rate.
- Risks: Despite the low risks associated with bank deposits, amounts exceeding the insured limit may expose part of the funds to risk in rare cases of bank failure.
- Investment alternatives: There may be other investment options with higher returns but greater risks, such as money market funds or bonds.

It is essential to evaluate financial goals and needs before making a decision to save or invest in bank deposits.

The volume of bank deposits in Saudi Arabia is expected to continue growing at a moderate pace during 2025, supported by economic stability and government policies encouraging savings. Competition between traditional banks, digital banks, and FinTech companies to attract individual and corporate deposits will persist.

We may witness further innovation in digital products, an expansion of promotional offers, and improvements in return rates in line with global and local interest rate movements. The deposit insurance system is also expected to expand to cover a broader range of customers, with ongoing awareness campaigns to promote a culture of saving.

Despite changes, the Saudi banking sector remains one of the most stable in the region, with regulatory authorities committed to protecting customer funds and enhancing transparency.