RIYADH: Banks in Saudi Arabia are expected to witness strong credit growth ranging between 8 to 9 percent in 2024, according to credit rating agency S&P Global.
The firm noted that corporate lending by financial institutions in the Kingdom will grow due to the increased economic activities fueled by Vision 2030.
“Saudi banks will likely report strong but slower credit growth of 8 percent to 9 percent in 2024 due to lower mortgage lending growth and tight liquidity. This compares with 10 percent credit growth reported on Dec. 31, 2023, which was in line with our expectations,” said S&P Global in the report.
It added: “Corporate lending growth will benefit from Vision 2030 projects and the ensuing stronger economic activity. We expect mortgage lending growth to slow further in 2024 due to high rates and market maturity.”
According to S&P Global, the Saudi government and its related entities are expected to inject deposits into the banking system to support the financial institution’s credit growth.
The report further pointed out that the contribution of government deposits and those from its related entities increased to 30 percent of the total by 2023 from almost 20 percent in 2020.
“While Saudi banks remain in a net external asset position, this declined over the past couple of years, a trend we think will continue. A rapid buildup of external debt could increase Saudi banks’ vulnerability to global liquidity conditions, in our view,” the credit rating agency added.
The report highlighted that the banking sector alone will not be able to meet funding needs, considering the long-term nature of investments under Vision 2030, and the substantial part of the financing will come from the local and international capital markets.
According to S&P Global, domestic liquidity conditions among Saudi banks normalized by the end of 2023, with the loans-to-deposits ratio reaching close to 100 percent in 2023, compared with 86 percent in 2019.
The credit rating agency projected that the return on assets among banks in Saudi Arabia will likely stabilize at 2.2 percent in 2024.
“Toward the second half of 2024, we expect slight margin compression from lower interest rates,” said S&P Global.
It added: “Corporate loans will reprice downwards leading to some pressure on the banks’ net interest margins. However, as interest rates increased fast over the past 18 months, we expect to see some impact on corporate creditworthiness, leading to higher non-performing loans.”
The report added that Saudi banks are well capitalized, with their dividend payout ratio to hover at an average of 50 percent this year.
