Saudi Banking Sector Thrives Amid Economic Diversification: Moody’s
Saudi Arabia’s push for economic diversification is significantly boosting its banking sector, with industries like construction and tourism presenting lucrative lending opportunities, according to a recent Moody’s report.
Moody’s highlighted that the Kingdom’s focus on reducing reliance on hydrocarbon revenue has positively impacted the performance of the banking sector’s loan portfolio. The Saudi Central Bank (SAMA) reported a record profit before zakat and tax of SR7.83 billion ($2.1 billion) for banks in July, marking a 23% annual increase.
Lea Hanna, an analyst at Moody’s, noted, We expect this trend to persist over the coming 12 to 18 months, further boosting the non-hydrocarbon economy where banks largely operate. Saudi borrowers’ repayment capacity is also supported by government policies and reforms.
She also mentioned that Saudi banks are experiencing lower delinquencies and fully covered nonperforming loans.
Moody’s projects robust growth of approximately 5.5% in Saudi Arabia’s real non-hydrocarbon GDP for both 2024 and 2025, driven by substantial government investments in infrastructure projects, which will increase credit demand.
The agency emphasized that sectors such as construction, tourism, and entertainment are crucial for the growth of Saudi banks’ loan portfolios. Diversification into new sectors, such as tourism, entertainment, and renewable energy, provides attractive lending opportunities,
Moody’s stated.
Lending to small and medium enterprises (SMEs) has increased but still constitutes a small portion of the sector’s overall loan book. Potential risks to asset quality include prolonged low oil prices and changes in government policy.
Hanna cautioned, Banks in Saudi Arabia remain exposed to downside risks should there be a reversal in economic momentum or a relaxation in authorities’ active support in managing system asset risks.
Additionally, Moody’s reported that Saudi banks are likely to expand their client base due to government-backed economic diversification initiatives that foster innovation and productivity. The analysis also highlighted that Saudi Arabia and Oman had the lowest volatility in non-oil sector growth among Gulf Cooperation Council countries from 2020 to 2023.