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Saudi banks’ credit is projected to rise on the back of a heightened push for funding megaprojects coupled with a growing appetite for homeownership, according to a recent report from rating agency Moody’s. The firm sees the government’s wide-reaching economic transformation plans providing ample business and lending prospects for the domestic banking sector.
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Big projects call for hefty loans: The government is looking to tap Saudi banks for financing major developments like Expo 30 and the FIFA World Cup 2034 as well as infrastructure projects. “Planned mega projects to diversify the economy include the tourism, real estate, and infrastructure sectors, and the government provides the country’s banks the [chance] to help fund them,” Moody’s assistant VP and analyst Abdullah Al Hammadi said.
Homeownership gains, mortgage booms: Household mortgages climbed to SAR 607 bn last year, marking a sixfold increase over the last eight years. This is in line with the Vision 2030 target of raising home ownership to 70% by 2030, compared to 47% in 2016. Mortgages have been a major driver of credit growth in Saudi banks over the last five years, now accounting for some 24% of total banking sector loans, according to the report.
A margin squeeze may be in the cards: “This could place pressure on margins,” Al Hammadi said, noting the fixed-rate nature of these mortgages with tenors of about 25-30 years. “We believe that larger banks will be hit hardest due to their dominant position in the Saudi mortgage market,” he added.
Foreign deposits + sukuk are set for a comeback: Moody’s also flagged a potential funding crunch, with deposit growth trailing behind credit expansion. “The banks will need to tap more confidence-sensitive market funding. This could entail foreign deposits, interbank syndications, and debt issuance, particularly Islamic bonds or sukuk,” said Al Hammadi.
Opting for a long-term strategy is key: “Reliance on short-term foreign funding is riskier,” the report noted, advocating for longer-term debt like senior unsecured bonds and Tier 1 allocations to align with banks’ loan portfolios and support Vision 2030’s infrastructure push.
