Saudi Arabia’s banking sector is on track for continued stability and profitability into 2025, as credit growth remains robust and lower interest rates foster an increasingly favorable lending environment. A recent report by S&P Global Ratings projects that corporate lending will drive the lion’s share of growth, while ongoing government initiatives, notably the Vision 2030 plan, are expected to fuel lending activity further.

The Credit Surge: Corporate Lending Leading The Charge

Corporate lending is poised to be the backbone of credit growth in Saudi banks. Thanks to the ambitious Vision 2030 projects, particularly in infrastructure and large-scale development sectors, demand for financing is at an all-time high. The anticipated credit growth of 10% in 2025 is largely driven by corporate financing needs as the kingdom’s private sector works to align with national goals of diversification and modernization.

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The effects of lower interest rates are already evident, as they are expected to further boost mortgage lending, adding yet another layer of growth to the financial system.

Stability Despite Rising Non-Performing Loans

Although non-performing loans (NPLs) are expected to edge up to 1.7% of total loans by 2025, up from 1.3% in September 2024, Saudi banks are well-equipped to handle the rise. Given the moderate nature of the increase and the absence of substantial write-offs, the banking sector remains resilient.

Banks in Saudi Arabia have built strong provisioning buffers, enabling them to manage any potential losses comfortably. This fortifies their position in what is likely to be a period of steady but not explosive credit growth.

The Global Landscape: International Financing For Vision 2030

As the country embarks on its ambitious Vision 2030 initiatives, Saudi banks are expected to continue leveraging international capital markets to fund the financing required for various projects. These initiatives are set to provide substantial long-term growth potential for both local and foreign lenders.

Surprising Loan Growth Signals A Thriving Sector

Saudi banks have already demonstrated impressive growth. The third quarter of 2024 saw a 3.7% quarter-on-quarter increase in loans and advances. Corporate and wholesale banking led the charge, growing by 4.4% and proving that the demand for lending within the kingdom is not just stable but accelerating.

With the ongoing strength of corporate lending, it’s clear that Saudi Arabia’s financial sector is far from reaching its peak growth potential. The financial support for Vision 2030 projects will likely continue to drive lending demand for the foreseeable future.

Vision 2030 And Non-Oil Sector Growth: A Diversified Path Ahead

Vision 2030’s focus on diversification and reducing reliance on oil revenues is showing tangible results in Saudi Arabia’s economy. The non-oil sector has posted strong growth, particularly in construction and services, driven by an expansion of the domestic workforce and increased consumer demand. The boost in the non-oil private sector has also been bolstered by a surge in export activities.

In December, the Riyad Bank Saudi Arabia Purchasing Managers’ Index (PMI) held steady at a strong 58.4, a modest dip from a 17-month high but still well above the 50.0 mark, indicating sustained growth in the private sector.

The Road Ahead: A Stable Path To Profitability

Looking to 2025, Saudi banks are positioned to continue benefiting from a thriving lending market. Corporate lending will remain a driving force, particularly as Vision 2030 continues to evolve and demand for financing rises. Although NPLs may see a slight increase, the banking sector’s strength in terms of provisions and a favorable credit environment will provide a cushion.

With a diversified economy and continued strong performance in the non-oil sector, Saudi Arabia’s financial institutions are set for another profitable year. As they continue to align with the kingdom’s forward-looking initiatives, Saudi banks will likely play a central role in the ongoing transformation of the kingdom’s economic landscape.

In short, 2025 looks promising for Saudi Arabia’s banks. They are well-prepared to leverage the growing demand for corporate and mortgage lending while maintaining strong profitability through their involvement in the Vision 2030 agenda.