Saudi banking sector growth driven by mortgages: report

Saudi Arabia’s banking sector has experienced rapid growth over the past few years, primarily driven by mortgages and thanks to continued government support, according to a new report from S&P Global Ratings.

The US-based agency pointed out that the Saudi government “has created the infrastructure for banks to divest their mortgage portfolios and improve the structure of their balance sheets” to boost home ownership to 70 percent, a key Vision 2030 objective.

Private sector deposit growth averaged about 5 percent over the past five years, compared with 14 percent growth in deposits from the government and its related entities.

The rating agency noted that the government still held significant deposits with the Saudi Central Bank, also known as SAMA, amounting to SR637.5 billion ($170 billion) at the end of 2022.

“This means that it can theoretically ease liquidity constraints by placing more deposits with the banking system. In 2022, SAMA reacted to liquidity stress by intervening and injecting SR50 billion, and we expect it to continue providing banking system liquidity when required,” it added.

Dr. Mohamed Damak, senior director and head of Islamic Finance at S&P Global Ratings, said: “We expect the Saudi banking system will continue to play a key role in financing Vision 2030 projects, with high single-digit percentage loan growth in the next couple of years.”

He added: “Banks can achieve this by mobilizing additional resources in the form of deposits or local and international issuances.”