Fitch says SAMA’s latest Basel III reforms to benefit mortgages, project finance

The Kingdom of Saudi Arabia's flag

Fitch Ratings said the implementation of the latest Basel III reforms by the Saudi Central Bank (SAMA) as of Jan. 1 is bound to benefit banks with the largest exposure to residential and commercial mortgage loans as well as high-quality project finance, according to a recent report.

“By contrast, banks with significant exposures to land acquisition, construction and development, financial guarantees and equities will face moderately higher capital requirements,” Fitch wrote.

The rating agency indicated that the latest Basel III reforms do not change its 2023 credit growth forecast of 12% (2022: 14%) for Saudi Arabia. While some wholesale exposures will devour more capital, heavyweight banks are poised to mitigate the impact, thanks to their robust capital buffers.

On another note, Fitch noted forecasts for “lenders’ appetite for project financing to increase in the medium term under [the Saudi] Vision 2030 … Collateralized lending against listed domestic shares will also be less capital-consuming.”

According to Fitch, Saudi Arabia is deemed one of the few jurisdictions to meet the internationally-agreed Basel III implementation date, alongside Australia, Canada, Indonesia and South Korea. This further reinforced the rating agency’s views that “SAMA is one of the most sophisticated and conservative regulators in the Middle East and Africa.”

In a phone call with Argaam earlier this week, SAMA stressed that the capital adequacy ratios (CAR) of banks fall within the regulatory limits set by the central bank and international standards. This enhances banks’ capability to provide finance and contribute to the Kingdom’s economic growth.