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The Saudi banking system is well-positioned for continued growth this year on the back of robust credit demand in non-oil sectors and economic diversification, according to S&P Global Ratings’s GCC Banking Sector Outlook 2024 report (pdf). On the whole, GCC banks are projected to maintain solid capitalization, profitability, provisioning, and liquidity, the report said, predicting “broad stability in key metrics across GCC banks and banking systems in 2024.”
GCC banks on the whole will see slightly slower credit growth: Credit growth will moderate slightly on the back of an unfavorable base effect and a more cautious approach to lending, the report noted. This comes amid a persistent high interest rate environment and uncertain external macroeconomic conditions, S&P Global said.
Saudi and the UAE are expected to have the strongest return on assets (RoA) during the year, with high levels of capitalization making them favorable when compared to regional or global peer groups, the report said.
Where do the risks lie? The report named four areas that could present risks:
- A “worsening geopolitical environment,” where “proxy conflicts” with some level of GCC involvement could have an impact;
- Oil price volatility;
- Exposure to the real estate sector;
- Some GCC banks’ expansion into what the report referred to as “high-risk jurisdictions” such as Egypt and Turkey, with exposure to both countries estimated at USD 160 bn. Saudi banks have less exposure here than do other regional lenders, S&P noted.
Real estate exposure in particular is a risk for UAE banks, the report said, as the ratings agency expects the real estate sector in Dubai see price corrections after prices soared last year. High vacancies in the commercial real estate sector could also lead to a slowdown in growth, it added.
