RIYAD: Saudi banks are gearing up to tap international capital markets as they align their growth trajectory with the Kingdom’s Vision 2030, according to Zeina Nasreddine, Associate Director at S&P Global Ratings.
The transformation agenda is expected to turbocharge non-oil economic growth, fueled by a construction boom, expanding services sector, and rising consumer demand, underpinned by a rapidly growing workforce.
The government and the Public Investment Fund (PIF) have intensified debt issuances to fund massive infrastructure projects, raising concerns about fiscal risks. However, recalibrating certain large-scale projects has helped mitigate these risks.
Nasreddine noted that Saudi Arabia is likely to maintain a net asset position above 40 per cent of GDP through 2027, providing a robust fiscal buffer.
Resilient profitability
Saudi banks are poised for stable profitability in 2025, with stronger credit growth supported by a vibrant economy and an anticipated decline in interest rates. While corporate lending will dominate credit growth due to a pipeline of Vision 2030 projects, lower interest rates are also expected to boost mortgage lending.
Lending growth is projected to hover around 10%, driven by corporate activity linked to infrastructure expansion and modernization efforts.
Nasreddine expects the cost of risk to normalise in the supportive economic environment, with non-performing loans (NPLs) rising slightly to 1.7 per cent in 2025 from 1.3 per cent in September 2024, as banks are not anticipating significant write-offs.
Challenges
Credit losses are expected to remain manageable at 50-60 basis points over the next 12-24 months, cushioned by robust provisioning levels.
Despite the optimism, the rapid increase in private sector leverage could pose challenges for asset quality in the long run. Nevertheless, the banking sector’s focus on corporate lending positions it as a key enabler of the Kingdom’s ambitious Vision 2030, while recalibrated fiscal strategies ensure sustainable progress.
Saudi banks are well-equipped to sustain growth and navigate evolving market dynamics, balancing their role as critical players in a transformative era for the Kingdom.
