Saudi banks likely to require further liquidity support from SAMA: Fitch

Saudi Arabian banknotes

Saudi banks are likely to require further central bank liquidity injections from the Saudi Central Bank (SAMA).

In a recent report, Fitch said this is likely to be driven by lending growth that continues to outpace deposit growth. Sector loans increased by 12.5% in the first nine months of 2022, compared with 8% for deposits, which led the loans/deposits ratio (LDR) for Saudi banks collectively to rise to 102.2%, the highest level in at least 15 years.

Without liquidity support, lending growth could be muted in Q4 2022, which lowers Fitch’s 2023 loan growth forecast of 12%, while banks’ cost of funding will continue to increase.

Despite strong credit demand with corporate and retail loans up 13.5% and 11.4%, respectively, in the first nine months of 2022, corporate credit demand is underpinned by large infrastructure projects under the Saudi Vision 2030 framework to diversify the economy.

Government initiatives to reach 70% home ownership by 2030 should support further growth in retail mortgages, Fitch added.

Banks could also use medium-to long-term funding to finance growth through subordinated debt, additional Tier 1 (AT1) securities or senior unsecured issuance. However, this would weigh on banks’ cost of funding and would not meet high financing demand from borrowers.