A rapid increase in demand deposits saw Saudi Arabia’s money supply rise to SR1.28 trillion ($341bn) in the second quarter, according to the kingdom’s central bank.

Demand deposits rose by SR8.51bn quarter-on-quarter to reach SR685.98bn, said Saudi Arabian Monetary Agency (Sama). However, despite the increase, the rate of improvement in capital flows was slightly diminished compared with the first quarter, despite the growth rate remaining marginally positive at 1.22 per cent.

The construction sector proved the main beneficiary of bank lending during the second quarter, with the total value of loans rising SR15.51bn to SR69.7bn. The financial sector was the second largest market for new loans from banks, with the value of lending topping SR22.4bn, up from SR14.38bn.

The combined assets of local lenders rose SR16.7bn to SR152.7bn, while outstanding loans to banks involving the private sector totalled SR933.4bn, up from SR898.9bn in the first quarter.

Real estate finance accounted for the largest rise in consumer lending in the second quarter, with the total value of loans amounting to SR47.85bn, up almost 50 per cent quarter-on- quarter. The result precluded the introduction of Saudi Arabia’s mortgage law, which was approved by lawmakers on 2 July.

Mortgage lending is expected to account for the highest rate of growth in loan provision in the kingdom over the next 12 months. In the long-term, local sources suggest the market could double in size to $32bn annually over the next decade.