According to Moody’s analysis, Saudi Arabia’s “Vision 2030” diversification programme, which aims to diversify the economy, may hasten the growth of the banking industry in the upcoming years.
The United States-based credit rating agency stated in its most recent report that the growth of Saudi Arabia’s planned megaprojects will be crucial in creating enormous business and lending opportunities for banks.
This growth is anticipated to be further supported by the infrastructure needed to host major events such as the FIFA World Cup in 2034, Expo 2030, the Asia Cup in 2027, and the Asian Winter Games in 2029.
In addition to gradually increasing the Kingdom’s presence in other industries like tourism, technology, and real estate, “Vision 2030” seeks to lessen the Kingdom’s decades-long reliance on crude revenues.
“Planned mega projects to diversify the economy include the tourism, real estate, and infrastructure sectors, and the government provides the country’s banks the opportunity to help fund them. One part of Saudi Vision 2030 is a plan to raise home ownership to 70% by 2030 from 47% in 2016,” Abdulla Al-Hammadi, assistant vice president and analyst at Moody’s Ratings said.
The Kingdom’s housing programme has fuelled bank credit expansion over the past five years, according to the report, with household mortgages rising from SR110 billion in 2016 to SR607 billion (USD 161.67 billion) by the end of 2023. Currently, they account for about 24% of all loans made by the banking sector.
“Given these mortgages were secured at a fixed rate during a time of low interest rates and that tenures are often for 25 to 30 years, this could place some pressure on margins in the sector. We believe that larger banks will be hit hardest due to their dominant position in the Saudi mortgage market,” Al-Hammadi stated.
Banks may experience increasing funding shortages if deposit growth lags behind loan growth. The nature of mortgage fixed-rate loans may make it difficult for banks to sell them in the secondary markets, which are still in their infancy.