Saudi Corporate Lending Surges Amidst Economic Transformation
Bank loans in Saudi Arabia grow to $782bn, driven by significant increases in corporate lending, signaling robust economic diversification efforts.
In a noteworthy development for Saudi Arabia's financial landscape, bank loans surged to 2.93 trillion Saudi riyals ($782 billion) in November, representing a 13.33% year-on-year increase—the most substantial growth in nearly two years, according to data from the Saudi Central Bank, known as SAMA.
This growth is primarily propelled by corporate lending, which soared 17.28% to reach 1.58 trillion riyals.
Real estate activities emerged as the leading sector for corporate loans, capturing 21% of the market and jumping 32% to hit 328 billion riyals.
Meanwhile, the wholesale and retail trade sector accounted for 13% of corporate lending and expanded by 10.62% to 201.6 billion riyals.
The manufacturing industry, pivotal to the Kingdom's Vision 2030 agenda for economic diversification, constituted 12% of corporate lending with totals amounting to 182.44 billion riyals.
The electricity, gas, and water supplies sector also noted a significant increase of 27.74%, reaching 178.56 billion riyals.
On a notable note, professional, scientific, and technical activities, despite comprising only 0.53% of the corporate credit market, saw an outstanding growth of 54.44%, summing up to 8.38 billion riyals.
Education loans, too, experienced considerable growth at 29.93%, amounting to 8 billion riyals.
In the realm of personal lending, which comprises various individual financial products, there was a 9.05% annual increase, bringing the total to 1.35 trillion riyals.
This indicates sustained confidence in consumer credit and aligns with Saudi Arabia's economic diversification goals.
Forecasts by Standard Chartered's Global Market Outlook indicate that lower interest rates are anticipated to bolster private sector expansion in Saudi Arabia, as well as the broader Gulf region, particularly benefiting industries sensitive to borrowing costs.
This comes amidst a projected slowdown in global growth from 3.2% to 3.1%.
The Kingdom's economic metamorphosis under Vision 2030 illustrates a harmonized effort among government bodies, financial sectors, and private businesses to foster sustainable growth and diversification.
Sectors such as education, science, technology, and utilities are gathering momentum through significant funding, aimed at enhancing their GDP contribution.
Recent global monetary policy shifts, reflected in interest rate adjustments by the Saudi Central Bank in response to the U.S. Federal Reserve, are expected to facilitate more affordable borrowing.
As interest rates decline, increased lending is likely to invigorate key industries and expedite the nation's ambitious transformation initiatives.
The Saudi banking sector remains strongly capitalized, with SAMA reporting a regulatory capital to risk-weighted assets ratio of 19.2% in the third quarter of 2024, slightly down from 19.5% the previous year but well above the Basel Committee's minimum requirement of 8%.
The Tier 1 capital ratio stood at 17.7%, underscoring the soundness of the banking system in supporting economic proliferation while safeguarding against potential risks.
An IMF study corroborates the strong capitalization, profitability, and resilience of Saudi banks to severe economic shocks.
Stress tests indicate their robustness in scenarios such as downturns in real estate prices.
While banks manage liquidity effectively, the IMF notes the necessity to address funding concentration risks.
SAMA's refinements in stress-testing methods and enhanced data collection efforts, as advised by the IMF, are likely to further strengthen credit risk modeling, aligning with the evolving dynamics of the Kingdom’s transformation.
Non-performing loans net of provisions to capital fell to 2.1% in 2024 from 2.2% the previous year, suggesting an improvement in loan portfolio quality.
Several mitigating factors lessen credit risk within Saudi Arabia's expanding real estate loan portfolio.
Fixed-rate mortgages provide borrowers insulation from interest rate flux, and loans structured with full recourse minimize strategic default risks.
Around 80% of retail borrowers, employed by the government, offer stable income even during economic downturns.
Most mortgages are salary-assigned, which further assures repayment stability.
This growth is primarily propelled by corporate lending, which soared 17.28% to reach 1.58 trillion riyals.
Real estate activities emerged as the leading sector for corporate loans, capturing 21% of the market and jumping 32% to hit 328 billion riyals.
Meanwhile, the wholesale and retail trade sector accounted for 13% of corporate lending and expanded by 10.62% to 201.6 billion riyals.
The manufacturing industry, pivotal to the Kingdom's Vision 2030 agenda for economic diversification, constituted 12% of corporate lending with totals amounting to 182.44 billion riyals.
The electricity, gas, and water supplies sector also noted a significant increase of 27.74%, reaching 178.56 billion riyals.
On a notable note, professional, scientific, and technical activities, despite comprising only 0.53% of the corporate credit market, saw an outstanding growth of 54.44%, summing up to 8.38 billion riyals.
Education loans, too, experienced considerable growth at 29.93%, amounting to 8 billion riyals.
In the realm of personal lending, which comprises various individual financial products, there was a 9.05% annual increase, bringing the total to 1.35 trillion riyals.
This indicates sustained confidence in consumer credit and aligns with Saudi Arabia's economic diversification goals.
Forecasts by Standard Chartered's Global Market Outlook indicate that lower interest rates are anticipated to bolster private sector expansion in Saudi Arabia, as well as the broader Gulf region, particularly benefiting industries sensitive to borrowing costs.
This comes amidst a projected slowdown in global growth from 3.2% to 3.1%.
The Kingdom's economic metamorphosis under Vision 2030 illustrates a harmonized effort among government bodies, financial sectors, and private businesses to foster sustainable growth and diversification.
Sectors such as education, science, technology, and utilities are gathering momentum through significant funding, aimed at enhancing their GDP contribution.
Recent global monetary policy shifts, reflected in interest rate adjustments by the Saudi Central Bank in response to the U.S. Federal Reserve, are expected to facilitate more affordable borrowing.
As interest rates decline, increased lending is likely to invigorate key industries and expedite the nation's ambitious transformation initiatives.
The Saudi banking sector remains strongly capitalized, with SAMA reporting a regulatory capital to risk-weighted assets ratio of 19.2% in the third quarter of 2024, slightly down from 19.5% the previous year but well above the Basel Committee's minimum requirement of 8%.
The Tier 1 capital ratio stood at 17.7%, underscoring the soundness of the banking system in supporting economic proliferation while safeguarding against potential risks.
An IMF study corroborates the strong capitalization, profitability, and resilience of Saudi banks to severe economic shocks.
Stress tests indicate their robustness in scenarios such as downturns in real estate prices.
While banks manage liquidity effectively, the IMF notes the necessity to address funding concentration risks.
SAMA's refinements in stress-testing methods and enhanced data collection efforts, as advised by the IMF, are likely to further strengthen credit risk modeling, aligning with the evolving dynamics of the Kingdom’s transformation.
Non-performing loans net of provisions to capital fell to 2.1% in 2024 from 2.2% the previous year, suggesting an improvement in loan portfolio quality.
Several mitigating factors lessen credit risk within Saudi Arabia's expanding real estate loan portfolio.
Fixed-rate mortgages provide borrowers insulation from interest rate flux, and loans structured with full recourse minimize strategic default risks.
Around 80% of retail borrowers, employed by the government, offer stable income even during economic downturns.
Most mortgages are salary-assigned, which further assures repayment stability.
