Residential mortgage lending continues to drive strong growth in Saudi Arabia: S&P Global

Riyadh City

S&P Global Ratings said that the residential mortgage lending continues to drive strong banking growth in Saudi Arabia.

GCC economies are recovering from the pandemic thanks to higher oil prices, still supportive government spending, and normalizing non-oil activity, the ratings agency said in a recent report.

The firm expects banks’ asset quality indicators to deteriorate only slightly as regulatory forbearance measures helped the corporate sector to deal with the negative effects of the pandemic. It also anticipated that non-performing loans (NPL) ratio will rise in the next 12-24 months without exceeding 5%, compared with 3.7% at Sept. 30, 2021.

GCC banks are positively geared to rising interest rates, the report added, indicating that the US Federal Reserve is likely to rise interest rates three times in 2022.

On an average, a 100-basis-point (bps) increase in rates will result in a 14% increase in earnings and 1% capital accretion.

It also drew attention that as interest rates are expected to increase, lower issuance volumes in 2022 are expected to be seen.

“We do not expect a major slowdown in lending growth following a rate increase as this is more dependent on government spending and oil prices,” S&P Global said.