Saudi banking sector outlook stable amid stronger non-oil growth: Moody’s

RIYADH: Saudi Arabia’s banking sector outlook remains stable, supported by stronger non-oil economic growth and solid capital buffers, Moody’s Ratings said, forecasting continued expansion despite liquidity constraints.

The credit rating agency noted that the Kingdom’s non-oil GDP is projected to grow by 4.2 percent this year, up from 3.7 percent in 2025, reinforcing banks’ lending and profitability.

Earlier this year, S&P Global predicted that banks operating in Saudi Arabia would sustain strong lending growth in 2026, fueled by financing tied to Vision 2030 projects. Fitch Ratings also highlighted the health of the sector, pointing to high credit growth and net interest margins.

Ashraf Madani, vice president and senior credit officer at Moody’s, said, “We expect credit demand to remain robust, but tight liquidity conditions will continue to limit the sector’s lending capacity.” He added that the operating environment would continue to support strong asset quality and profitability.

Authorities in the Kingdom are implementing business-friendly reforms, including full foreign ownership rights, simplified capital market registration procedures, and improved investor protections. Moody’s said these initiatives could accelerate credit growth to 8 percent this year.

Problem loans are expected to remain near historic lows at around 1.3 percent of total loans, aided by favorable conditions and lower interest rates. Retail credit risk remains controlled, as most borrowers are government employees with stable incomes.

Profitability is expected to stay solid, supported by sustained loan growth and fee income, while net income to tangible assets is forecast at 1.8–1.9 percent. The report also noted that Saudi banks benefit from a very high likelihood of government support in the event of any failures, despite the country not having adopted a full banking resolution framework.