Saudi banks credit 2025: High oil prices and economic expansion drive GCC growth

Saudi Arabian and UAE banks are set to experience robust credit growth in 2025, according to a recent analysis by Fitch Ratings. The report highlights the favourable impact of high oil prices and ongoing diversification efforts on the financial sector, with Saudi banks expected to outperform their Gulf Cooperation Council (GCC) counterparts.

Fitch forecasts that Saudi banks will see financing growth of approximately 12 per cent next year, nearly double the GCC average. Corporate lending is projected to dominate, accounting for 65 to 70 per cent of new financing activity among Saudi banks. This uptick aligns with the Kingdom’s Vision 2030 strategy, which focuses on diversifying its economy away from oil dependency through transformative initiatives and giga-projects.

“The operating environment for banks in the Kingdom is underpinned by high oil prices and government spending,” the Fitch report noted. These factors not only support the Vision 2030 framework but also drive solid non-oil GDP growth. Fitch anticipates non-oil GDP to grow at an average of 4.5 per cent annually between 2024 and 2025, a slight dip from the 5 per cent growth seen in 2022-2023.

Giga projects, integral to the Kingdom’s diversification efforts, continue to attract strong banking interest. However, Fitch observed that the share of financing tied to these mega-developments remains modest for most rated banks. As these projects gradually progress, their influence on banking sector metrics is expected to deepen.

The outlook for UAE banks is similarly positive, buoyed by a resilient economy and a focus on non-oil sectors. However, Fitch notes that Saudi banks are poised to lead regional growth due to their alignment with the Kingdom’s expansive development agenda.

Despite this promising trajectory, Fitch cautions that Saudi banks could face challenges with net foreign assets. Negative balances may persist into 2025, driven by high-cost domestic term deposits and increased demand for foreign currencies.

The report reflects optimism previously shared by Moody’s, which in November also pointed to the transformative impact of Saudi Arabia’s Vision 2030 on the banking sector. As the Kingdom channels investments into new industries and infrastructure, its banks are well-positioned to capitalise on emerging opportunities, bolstered by solid financial metrics and strong government backing.

Saudi Arabia’s banking sector stands at the forefront of the region’s financial evolution, leveraging favourable macroeconomic conditions and strategic initiatives to fuel growth. With the dual engines of high oil prices and non-oil economic expansion, 2025 promises to be a pivotal year for the Kingdom’s financial institutions.