Saudi finance companies’ credit facilities increase 12% to reach $24bn in Q1

Credit facilities provided by Saudi finance companies saw 12 percent annual rise in the first quarter of 2024, to reach SR88.6 billion ($23.62 billion), official data has revealed.

Figures released by the Saudi Central Bank, also known as SAMA, showed that personal finance accounted for the largest share, representing 28 percent of total facilities, amounting to SR25.12 billion.

This marked a 23 percent increase during this period.

Credit extended for residential real estate came in second, totaling SR22.91 billion, with a modest 1 percent growth. However, its share of total facilities declined from 29 percent to 26 percent during this period.

Auto finance followed closely, with facilities totaling SR22.73 billion, marking an 18 percent rise from the same quarter last year.

Commercial real estate finance accounted for 5 percent of the total, amounting to SR4.44 billion, with a growth of 4 percent.

Despite its smaller percentage share of 2 percent, credit card finance saw the highest growth rate, increasing by 32 percent to reach SR1.36 billion.

Banks continue to be the primary lenders in Saudi Arabia, with total credit reaching SR2.67 trillion by the end of this quarter. Facilities from finance companies made up just 3 percent of this total.

Since 2022, SAMA has implemented significant amendments, including allowing finance companies to engage in multiple fiscal activities, such as real estate lending.

Additionally, SAMA introduced the first three licensed debt-based crowdfunding companies and authorized two firms to operate in microfinance, according to the latest data provided by the bank in 2023.

These developments, particularly in debt-based crowdfunding, are expected to diversify the finance companies’ portfolio structure by enabling broader participation in the sector from individuals and non-financial institutions.

A report from SAMA into the stability of the industry shows that the finance companies sector faces a concentration risk, with three-quarters of total exposure in retail loans.

However, according to the analysis, this risk is somewhat mitigated as half of these loans are allocated to public sector employees, who have greater job security and are less likely to default.

Recent developments, such as debt-based crowdfunding, are expected to diversify the industry’s activities, especially by improving funding access for MSMEs in line with Vision 2030 and the Financial Sector Development Program.

The sector’s funding primarily comes from debt and paid-in capital, accounting for 85 percent, with the remaining 15 percent from reserves and provisions.