RIYADH: Saudi Arabia’s private credit market is set to expand rapidly as the Kingdom seeks to bridge the funding gap created by the Vision 2030 transformation agenda, according to S&P Global Ratings. 

In a new report, the agency said the country’s vast funding requirements and the accelerated growth of small and midsize enterprises are creating a significant opening for private capital financing. But it warned that structural challenges could weigh on the asset class’s development. 

This comes as Saudi Arabia’s public and private sector debt, including bank lending, bond and sukuk issuances, and private capital financing, grew at a compound annual rate of 12 percent from 2021 to 2024. Nonbank lending has also become an increasingly relevant component, with credit instruments distributed to a relatively narrow investor base. 

“Saudi Vision 2030’s economic and social diversification targets require substantial amounts of financing. We believe that this offers private capital financing a significant growth opportunity,” said S&P Global Ratings credit analyst Zeina Nasreddine. 

The agency noted that financing demand is set to remain elevated, with Saudi Arabia’s funding needs remaining high in recent years and continuing to fuel strong lending growth. It added that slower deposit growth is prompting banks to turn increasingly to alternative funding channels. 

"Given the country's large financing needs, private capital financing, in collaboration with banks, can offer loans to the domestic market. Over time, this would allow banks to mitigate exposure to single-name and sector concentration risks and free up capital," added Nasreddine. 

Despite being a relatively new and hard-to-measure asset class, private credit has grown rapidly, yet still accounted for only 2 percent of the Kingdom’s total debt stock in 2024, according to S&P Global Market Intelligence. 

Even so, the market has expanded tenfold since 2020, reaching $3.7 billion last year, the report stated. Sectors accessing this financing between 2020 and August 2025 range from established industries such as petrochemicals and airlines to fast-growing segments including digital payment services. 

Borrowers include government-related entities, large private conglomerates, and smaller businesses such as travel agencies and food retailers. The investor base is similarly diverse, comprising Asian investors, GREs, a major US bank, and Saudi investment funds committed to private debt. 

Saudi banks, amid weakening deposit growth, are also exploring alternative funding avenues. Private capital can work alongside lenders to support domestic credit expansion while helping banks diversify exposures and release capital.   

S&P expects micro, small, and midsize entities to be a key growth engine for private credit. The Vision 2030 program aims to increase the SME sector’s contribution to the gross domestic product to 35 percent by 2030, up from 21.9 percent in 2023.  

The agency estimates that SME leverage, measured by dividing MSME loans from banks and nonbanks by the sector’s GDP contribution, rose from 22 percent in 2020 to 28 percent in 2023. “We expect lending to SMEs will increase to meet Vision 2030 targets,” S&P added.  

Despite the promising outlook, the agency highlighted that the private credit asset class is facing inherent challenges. “As an asset class, private credit offers less transparency and liquidity than publicly listed debt,” it said. 

The valuation process adds another layer of complexity; while public debt is priced through secondary markets, private credit managers rely on mark-to-model valuations that can vary significantly from one manager to another, creating uncertainty about the true value of instruments.  

Furthermore, a slowdown in mergers and acquisitions activity, which began during the higher-for-longer interest rate environment, is weighing on private equity general partners seeking to return capital to investors from funds nearing the end of their lifecycle. “The regional market needs more M&A activity and public exits to demonstrate maturity and build investor confidence,” S&P added. 

At this stage, however, the agency noted that broader systemic risks to Saudi Arabia from private credit “remain limited,” given its still-small contribution to overall financing.