Saudi banks' credit growth underpinned by mortgage portfolios growth, key construction projects: S&P

Riyadh city

S&P Global Ratings said in a report that the growth of mortgage portfolios and the launch of major construction projects as part of Vision 2030 will support the credit growth of Saudi banks, that will likely reach 15% in 2021 and remain above 10% in 2022.

The Saudi banking sector showed resilience in the face of low oil prices and weak economic growth, it added.

The sector is still affected by the dynamics of oil prices and government spending, in addition to its exposure to regional and global economic and geopolitical waves.

The cost of risk will likely stabilize at nearly 90 to 100 basis points, before starting to return to normality in 2022, S&P said, adding that lower interest rates will pressure banks' profitability, which will be partially offset by a higher share of loans in total assets.

The ratings agency expects Saudi banks to overcome these challenges and be able to maintain an average return on assets of about 1.4-1.5% in the coming years. It also expects banks' financing portfolios to continue to underpin their creditworthiness.

It added that, despite the gradual growth of external financing, banks still depend on stable customer deposits for their financing.