The banking sector outlook of Saudi Arabia is stable because of the improved performance of the non-oil economic growth and strong capital buffers based on lending and profitability, Moody’s Ratings said, predicting further growth, despite liquidity constraints.
Credit rating agency Moody, in its most recent report, indicated that the development of the non-oil gross domestic product of the Kingdom is expected to grow by 4.2 percent in 2021 as compared to 3.7 percent in 2025.
S&P Global also gave a similar opinion in January, stating that banks in the Saudi Arabian market should continue to record high lending growth in 2026, due to the growth in financing demand as a result of Vision 2030 projects.
Fitch Ratings also highlighted the good health of the Saudi banking system last month, citing the fact that credit growth and large net interest margins are fueling bank profitability in the Kingdom.
In response to the latest report, Ashraf Madani, vice president and senior credit officer at Moody’s Ratings, said: “We expect credit demand to remain robust, but tight liquidity conditions will continue to limit the sector’s lending capacity.”
Madani said that the operating conditions in Saudi Arabia will remain favourable to the quality of assets and profitability of banks.
He added, “The operating environment for banks remains buoyant, underpinned by a forecast increase in non-oil GDP growth, robust solvency and continued progress toward the government’s economic diversification goals.”
Moody’s stated that authorities in the Kingdom are making business-friendly reforms to enhance investment and the activity of the private sector to a stronger position, and take on the important development projects as well as prepare for the major global events.
Saudi Arabia has further promoted reforms such as complete foreign ownership rights, easier capital market registration policies, and enhanced investor protections that may boost credit growth to 8 percent this year.
It is projected that problem loans will continue to stay at or near historical lows of approximately 1.3 percent of total loans with continuing credit growth, good operating conditions, and reduced interest rates, all contributing to increasing borrower repayment capacity.
The retail credit risk is kept under control in Saudi Arabia since the majority of the borrowers are government employees with a steady flow of income.
Moody’s reported, “Concentration of single borrowers and specific sectors remains high, although the growing proportion of consumer loans — now nearing 50 percent of overall sector lending — continues to reduce aggregate concentration risk.”
The report indicated that profitability would stay strong among Saudi banks, which would be backed by the continued growth of loans and fee income.
The margins are also predicted to be stable regardless of the reduced asset yields because banks seize the credit demand to increase the spread of loans on both existing and new lending.
However, Moody’s anticipates net income to tangible assets to remain stable at 1.8 percent to 1.9 percent this year. The report added that Saudi banks benefit from a very high likelihood of government support in the event of any failures.
Moody’s added, “We assume a very high likelihood of government support in the event of a bank failure. This is based on the government’s track record of timely intervention.”
It added that Saudi Arabia is alone among G-20 nations that have not implemented a banking resolution framework. Thus, it is the only Gulf Cooperation Council member to have initiated a law for systemically important financial institutions.
