Saudi banks may turn to alternative funding strategies due to the rapid increase in lending, particularly driven by new mortgages and the state-backed initiative to boost home ownership, according to a report by S&P Global. Mortgage financing represented 23.5 percent of Saudi banks’ total credit allocation at the end of 2023, compared to 12.8 percent in 2019. This increase in lending, especially to support Vision 2030, is expected to prompt banks to seek funding from sources outside traditional deposits.
The report warns that this approach could impact the credit quality of Saudi Arabia’s banking sector as banks look to meet the demand for funding the expansion in corporate lending. Saudi banks have already tapped international capital markets, and S&P Global predicts this trend will continue for the next three to five years. The agency also anticipates a shift from a net external asset position to a net external debt position in the coming years as banks work to support lending growth amidst lower deposit expansion.