S&P Global Ratings recently disclosed that the reform programme, Vision 2030, of Saudi Arabia, will necessitate an investment of approximately USD 1 trillion spread over several years. According to the report, the Public Investment Fund (PIF) and the government will contribute a portion of this investment. S&P Global Ratings does, however, also anticipate a sizable contribution from banks and capital markets.
According to S&P Global Ratings, there will undoubtedly be more leverage in Saudi Arabia’s private sector and the country’s overall economy due to this “Vision 2030” economic diversification agenda. It does point out that there is still uncertainty over the rate and scope of the growth in leverage in the business sector.
Saudi’s Banking Environment
Over the last five years, the banking industry in Saudi Arabia has expanded its lending, mostly as a result of a rise in mortgages. This is because there hasn’t been significant growth in publicly traded company debt, according to S&P. Furthermore, Saudi Arabian corporations have hesitated to undertake considerable capital expenditures because of the country’s high interest rate environment.
Businesses in the energy, healthcare, and materials sectors still mostly rely on their cash flow to meet their investment and working capital requirements. S&P anticipates that debt is increasing in the private sector, that is, among unlisted businesses, supporting robust corporate growth, even while the leverage of listed corporations is still manageable.
Notably, foreign debt is increasingly outweighing domestic debt in the composition of company balance sheet debt. The sector is strong due to its strong asset quality.
Elevated debt from the private sector in Saudi Arabia’s banking sector may lead to future imbalances and asset quality issues. Nonetheless, the banking system is well-capitalised and has solid overall asset quality metrics. For the next year or two, the research anticipates that banks’ strong profitability and prudent dividend payments will sustain their capitalisation.
Saudi Arabian corporations have been active in 2022 and 2023 in generating additional stock through initial public offerings (IPOs), in addition to raising debt. Thirteen private companies have declared their intention to list Saudi Arabia’s parallel and primary markets (Nomu) since the beginning of 2024. Apart from generating robust internal cash flow, this will also aid in limiting the accumulation of company debt.
Arab National Bank Strengthens IT
The Arab National Bank (ANB) has made major strides to improve the resilience of its IT infrastructure and applications as part of Saudi Arabia’s ambitious “Vision 2030” project, which aims to embrace digital change and diversify the economy.
Kyndryl and ANB initiated a strategic strategy to automate their IT systems’ disaster recovery. Initially, the automation of the switchover and recovery of non-critical applications was the focus, with every human step carefully checked before automation. Because of this cautious approach, ANB has been able to automate switchovers and recoveries for its mission-critical applications 80% faster.
“We first automated the recovery and switchover of less important apps with Kyndryl. Because we had to confirm each manual process before attempting automation, everything proceeded slowly. We can now automate switchovers and recoveries on our mission-critical applications 80% faster than when we first started,” said ANB’s Head of Technology and Infrastructure Services, Raed Aldawood.
A strong disaster recovery solution was required due to the Saudi Central Bank’s strict focus on service availability and quick reaction to important incidents. With the help of Kyndryl, ANB’s new IT Disaster Recovery Orchestration and Automation solution offers real-time dashboards and data that give users a high level of insight into disaster recovery performance. This system provides end-to-end orchestration and automation of disaster recovery across the whole technological stack, ensuring compliance with regulatory standards.
Arab National Bank’s proactive efforts to improve its IT infrastructure highlight the bank’s dedication to supporting the Kingdom’s digital transformation objectives and guaranteeing dependable and robust banking services for all, as Saudi Arabia proceeds down its Vision 2030 path.
The Country’s Prospects
The attention will continue to be on Saudi Arabia’s growing debt load. S&P anticipates that growth will be steady and focused on the PIF (Public Investment Fund) portfolio companies.
Furthermore, the analysis projects Saudi Arabia’s real gross domestic product (GDP) to expand by 2.2% in 2024 and 5% in 2025. Additionally, it states that because of government investments in Saudi Arabia’s “Vision 2030” initiatives, the non-oil economy will continue to grow and contribute a higher portion of the country’s GDP.
There are still dangers Saudi Arabia has to deal with, such as geopolitical concerns and higher-for-longer interest rates, which could result in greater spreads for the weakest companies. Furthermore, banks will need to find new sources of funding to support their expansion. For this reason, the report anticipates a gradual increase in leverage.