Saudi bank’s credit growth to be led by mortgages, oil market: report

Rated banks in Saudi Arabia are expected to maintain stable financial risk profiles in 2020, however growth remains dependent on the dynamics of the oil market and is vulnerable to global economic and regional geopolitical trends, according to a recent report by S&P Global Ratings.

Titled “Banks in Emerging Markets: 15 Countries, Three Main Risks”, the report noted that the lending growth in the Kingdom will be mortgage-led and credit losses are forecast to stabilize in 2020 at about 70 basis points (bps).

The growth prospects remain linked to commodity prices and are susceptible to adverse changes in the global economic conditions.

“For Saudi Arabia, credit losses are set to stabilize, aided by the steadying economy and mortgage-led lending growth,” the report added.

However, weak growth and muted investment activity in the Saudi private and public sectors has weighed on the contracting industry.

“Although most problematic exposures have been written off, some volatility in exposure quality cannot be ruled out. In addition, the outflow of expatriates continues to pressure the property, vehicle markets, and the retail sector,” it said.

On the regulatory front, the Saudi Arabian Monetary Authority (SAMA) is a strong regulator with a good track record, the report said.

It further explained that SAMA has relaxed some regulatory requirements in 2019 related to mortgage lending in line with the Saudi government objective aimed to increase home ownership.

Looking ahead, the government’s expansionary budget will be sufficient to boost the gross domestic product (GDP) growth above 2% in 2020-2021, although credit growth will remain moderate, the report concluded.