RIYADH: Saudi banks could unlock additional funding and expand the Kingdom’s debt market by converting home loans into investment products, according to a recent report by Fitch Ratings.
The rising securitization of residential mortgage loans would represent a major shift in financing strategies, with Saudi banks’ combined mortgage portfolio now totaling around SR0.7 trillion ($186.7 billion) — approximately 23 percent of gross loans.
Securitization involves pooling loans — such as mortgages or unpaid debts — and converting them into tradable securities that investors can purchase. This process enables banks to raise capital, reduce risk exposure, and support the development of deeper capital markets.
“Saudi Arabian banks’ liquidity profiles and capital ratios may benefit if potential bad debt securitisations go ahead, but probably not enough to trigger Viability Rating upgrades,” Fitch Ratings said.
“Securitisations, which some banks are reportedly considering, could also help to develop the Kingdom’s debt capital markets,” it added.
Some financial institutions have already begun to take steps in this direction, including the issuance of mortgage-backed securities by the Saudi Real Estate Refinance Co. However, Fitch noted that “the use of mortgage securitizations is still low,” with SRC’s loan book amounting to only SR29 billion.
The report noted that impaired loans in the banking sector have declined, reaching SR41 billion, or 1.4 percent of gross loans, by the end of 2024 — down from SR49 billion in 2022 — driven by write-offs and a healthier operating environment. Newly impaired loans also fell to SR10 billion in 2024, from SR16 billion in 2022.
Should banks proceed with securitizing impaired loans, the agency added that the resulting bonds would likely be issued at the loans’ net balance sheet value, which stood at SR17 billion at the end of 2024.
However, Fitch cautioned that “the uplift to core capital ratios from impaired loans securitizations would be limited,” as these loans represent just 0.5 percent of risk-weighted assets.
While securitization is unlikely to significantly narrow the Kingdom’s SR0.3 trillion deposit gap or alter Fitch’s 12–14 percent credit growth forecast for 2025, it could offer banks an alternative source of funding.
This is especially relevant as lending continues to outpace deposit growth, and Saudi banks play a pivotal role in financing the Kingdom’s giga-projects.
Ultimately, the shift toward greater securitization — whether of impaired loans or mortgages — could prove instrumental in diversifying bank funding and strengthening Saudi Arabia’s capital markets.
The push also aligns with the Kingdom’s Vision 2030 goals to transform the financial sector into a key engine of economic growth. Developing deep, liquid capital markets through instruments like mortgage-backed securities supports the broader strategy to diversify funding sources beyond traditional banking and position Riyadh as a regional financial hub.
