Saudi banks and capital market poised to drive Vision 2030 objectives: S&P Global

Saudi banks and the capital market are poised to make substantial contributions alongside the Public Investment Fund in achieving the objectives of Vision 2030, stated a report by S&P Global.

The latest analysis by the global rating agency underscores that their involvement in the Kingdom’s economic diversification endeavors will enhance leverage in both the Saudi private sector and the broader economy.

The report, citing public sources, indicated that the Saudi government’s transformation program aimed at enhancing the country’s economic, social, and cultural diversification will necessitate approximately $1 trillion in investments over several years.

“Part of this sum will come directly from the government and the Public Investment Fund, but S&P Global Ratings also expect banks and capital markets to contribute a significant amount,” stated the US-based agency in the report.

It added: “This will inevitably increase leverage in the Saudi private sector and the broader economy, albeit from low levels. The pace and extent of the increase in leverage in the corporate sector remain uncertain.”

As per the report, Saudi Arabia’s banking sector maintains a robust position, characterized by strong asset-quality indicators and overall capitalization.

The credit rating agency further anticipates that the banks’ sound profitability and conservative dividend payouts will persist, thereby bolstering their capitalization over the next one-to-two years.

S&P Global highlighted the expansion of the capital market in the Kingdom, noting that from January to May 2024, 13 private companies have announced potential listings on Saudi Arabia’s main market and parallel market.

The analysis projected that Saudi Arabia will experience a real gross domestic product growth of 2.2 percent in 2024 and 5 percent in 2025, with the non-oil private sector emerging as a key contributor to this expansion.

Earlier this month, S&P Global, in another report, noted that banks in Saudi Arabia are expected to pursue alternative funding options to manage the rapid expansion in lending.

The agency said that this pursuit of external funding could potentially impact the credit quality of Saudi Arabia’s banking sector.

“The ongoing financing needs of the Vision 2030 economic initiative and relatively sluggish deposits growth, is likely to incentivize banks to seek alternative sources of funding, including external funding,” said S&P Global.