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Banks and capital markets are set to contribute “significant amounts” to the USD 1 tn in funding needed to advance the Kingdom’s diversification plan over the next few years, according to a report by S&P Global. While the Kingdom’s treasury and the Public Investment Fund will make available the bulk of the funding, expect to see private capital playing an increasingly important role.
The caveat: “The pace and extent of the increase in leverage in the corporate sector remain uncertain,” S&P analysts write.
The current state of play in the banking system: Mortgages led lending growth by banks over the past five years, S&P Global said. “This is one reason why we haven’t seen lending growth translate into a material increase in publicly listed corporate debt,” it said. Energy, healthcare and materials sectors saw low debt-to-equity ratios of 0.5x–0.7x last year, leaving them to depend on internal cashflow to finance working capital and plans for growth.
The banking system remains robust with profitability and stable dividends distribution backing capitalization throughout 2025-2026, S&P Global said.
A “buildup of corporate debt” could be curbed by the ongoing listings bonanza seen since the start of the year, according to S&P Global. It noted that 13 firms have announced plans for listings on Tadawul and parallel market Nomu until 2 May. The buildup could come in gradual and “potentially concentrated” in some of the PIF’s subsidiaries, S&P Global said.
More reassurances on non-oil: S&P Global sees real GDP growth coming in 2.2% this year and 5.0% next year on the back of a growth in the non-oil sector. The Finance Ministry is targeting a GDP growth of 4.4% in its budget for this fiscal year. The IMF revised its 2024 growth forecast for the Kingdom to 2.6% last month, pointing to the combined effects of lower oil prices and production cuts.
