RIYADH: Despite tighter liquidity, banks in Saudi Arabia are expected to perform well this year thanks to a favorable operating environment in the Kingdom, according to credit rating agency Fitch.
The latest report from the US-based firm noted that non-oil economic growth in Saudi Arabia will play a crucial role in elevating the profitability of banks in the Kingdom.
“The average operating profit/risk-weighted assets of Fitch-rated Saudi banks was 2.7 percent in 2022, and we expect non-oil economic growth to support profitability in 2023, driven by government capex, private-sector credit growth, lower unemployment and the government’s ongoing Vision 2030 strategy,” said Fitch in its report.
The growth of the private sector is a reflection of the measures adopted by Saudi Arabia to successfully pursue its economic diversification goals outlined in Vision 2030, as it moves away from oil as a dominant revenue source.
According to the report, average sector financing growth in Saudi Arabia will slow to 12 percent in 2023, compared to 14 percent in 2022, but will stay ahead of its Gulf Cooperation Council counterparts which are expected to witness a growth of 5 to 6 percent this year.
The report further noted that mortgage financing in the Kingdom reached SR567 billion ($151.1 billion) in the first quarter of 2023.
“Strong demand for mortgage financing, underpinned by a state subsidy program, has supported financing growth in recent years,” added Fitch in its report.
Earlier this month, Fitch Solutions, the research arm of Fitch Ratings, predicted that Saudi Arabia’s business landscape is expected to see a surge in investments from the pharmaceutical sector, with growing demand for healthcare services and increasing fundraising activity in the industry.
The Fitch Solutions report added that the Kingdom has now become a favorite destination for pharmaceutical companies, primarily driven by the country’s large and increasing population, strong healthcare infrastructure, and the government’s dedicated efforts to develop the sector.
Meanwhile, pharmaceutical giants including Novartis, Pfizer, Sanofi, Merck, and GlaxoSmithKline have already established a presence in Saudi Arabia through direct investment or partnerships with local companies.
