Saudi banks at the center of a more diversified economy

At a time when the global economy is grappling with inflationary pressures, tight financial conditions, geopolitical risks, and lingering concerns over equity market valuations, economic resilience has become a defining advantage. 

With global growth projected by the International Monetary Fund at just 3.3 percent in both 2025 and 2026—below the long-term historical average—countries with strong financial systems are best positioned to weather ongoing uncertainty.

Saudi Arabia stands out in this regard. Despite challenging global and regional conditions, the Kingdom’s economy has demonstrated notable resilience, supported in large part by the strength and stability of its banking sector.

Throughout 2025, Saudi banks maintained solid financial indicators, underpinned by strong economic fundamentals, ample liquidity, and a robust fiscal position. Data from the Saudi Central Bank’s Monthly Statistical Bulletin for December 2025 highlight the depth and resilience of domestic liquidity conditions. Broad money supply (M3) increased by 8.4 percent year on year to SR3.2 trillion ($844.7 billion), reflecting the stability of funding within the financial system.

At the same time, reserve assets rose by 5.3 percent to approximately SR1.7 trillion, while government reserves stood at around SR390 billion. These buffers have provided confidence and flexibility at a time when many economies are facing fiscal and financial constraints.

While lending growth continued to outpace deposit growth, the banking sector maintained sufficient liquidity to support credit expansion and day-to-day operations. This was reinforced by the Saudi Central Bank’s role as lender of last resort, alongside banks’ ability to access alternative funding sources, including sukuk issuance, to meet medium- and long-term financing needs.

Crucially, this expansion has not come at the expense of financial stability. Capital adequacy ratios across the sector remained comfortably above regulatory requirements, while asset quality indicators continued to improve. Credit growth has supported economic activity without elevating systemic risks.

Banks have continued to meet the financing needs of the private sector, including mortgages and small and medium-sized enterprises. The loan-to-deposit ratio declined to a prudent 80.34 percent, compared with 83.24 percent a year earlier, signaling improved liquidity management. Claims on the private sector rose by 10.2 percent year on year to SR3.15 trillion, underscoring sustained credit momentum.

Mortgage lending increased by 10.8 percent to approximately SR938 billion in the third quarter of 2025, reflecting steady demand in the housing market. Even more striking was the growth in financing to SMEs, which rose 37 percent year on year to SR427.7 billion. As a result, SMEs’ share of total bank credit increased from 9 percent in the third quarter of 2024 to 11 percent a year later.

This trend represents meaningful progress toward Vision 2030’s objective of raising SME financing to 20 percent of total credit. It also highlights the expanding role of Saudi banks in supporting private sector development, job creation, and economic diversification.

Shariah-compliant financing continued to gain momentum, rising by 13.5 percent to SR2.7 trillion in the third quarter of 2025. The steady expansion of Islamic finance underscores its growing importance as a pillar of inclusive and sustainable economic growth.

Consumer lending remained resilient but measured. Consumer loans and credit card balances reached SR476.7 billion in the fourth quarter of 2025, up modestly from a year earlier, while credit card balances alone increased by 10 percent. These trends point to healthy household demand while remaining consistent with prudent credit conditions.

Overall, the December 2025 bulletin presents a cautiously optimistic outlook. Despite persistent global risks, Saudi Arabia’s strong fiscal position, resilient banking sector, and diversified growth drivers provide a solid foundation for stability.

The Saudi Central Bank’s continued focus on monetary stability, sustainable credit growth, and financial system resilience has been instrumental in navigating global uncertainty. As many economies confront tightening constraints, Saudi banks are emerging not only as a source of stability, but as a key driver of sustainable economic growth.

 

• Talat Zaki Hafiz is an economist and financial analyst.

X: @TalatHafiz