meed-logo

line1 line2 line3
SIGN IN / REGISTER

Saudi banks track more modest growth path

15 September 2023

MEED's October 2023 special report on Saudi Arabia also includes: 

> Gigaproject activity enters full swing
> Infrastructure projects support Riyadh’s logistics ambitions
> Aramco focuses on upstream capacity building
> Saudi chemical and downstream projects in motion
> Riyadh rides power projects surge
> Jeddah developer restarts world’s tallest tower

 

Surging oil prices may have imbued the kingdom with a renewed sense of economic purpose, but the situation for banks is more complicated.

Economic conditions – notably the higher interest rate climate – have made life more challenging for lenders. They have been acquainting themselves with normality in 2023, after two post-Covid years in which the increase in profit yields averaged 30 per cent.

This year, Saudi bank metrics are solid rather than spectacular. Second-quarter net profits for the country’s 10 listed banks declined by 0.3 per cent in quarter-on-quarter terms to SR17.4bn ($4.64bn), according to figures from Alvarez & Marsal.

Fitch Ratings expects average sector financing growth to slow this year, although remaining above the GCC average of a forecast 5-6 per cent.

According to Junaid Ansari, head of Investment Strategy & Research at Kamco Invest, Saudi Arabia still recorded the strongest growth in outstanding credit facilities during the second quarter of 2023 at 2.5 per cent in quarter-on-quarter terms, while growth in Kuwait, Qatar, Bahrain and Oman was below 1 per cent.

Growth drivers

Aggregate credit facilities in Saudi Arabia grew 5.2 per cent on the start of the year to reach SR2.5tn ($670bn).

“Real estate was the biggest sector in terms of total lending in Saudi Arabia, accounting for 30 per cent of total bank credit facilities and 61 per cent of personal facilities during the second quarter,” says Ansari, citing Saudi central bank data from Bloomberg. 

“Lending growth at Saudi banks is still high, albeit decreasing,” says Anton Lopatin, senior director at Fitch Ratings.

“Fitch is forecasting it to be 12 per cent for the whole year 2023, compared to 14 per cent last year. This is partially because mortgage financing affordability has decreased due to higher interest rates and also state subsidies have been tightened.”

Strong demand for mortgage financing, underpinned by a state subsidy programme, has supported the financing growth of Saudi banks in recent years, says Fitch.

Mortgage financing reached SR567bn ($151bn) at the end of the first quarter of 2023, with a compound average growth rate of 35 per cent over the past five years.

But Fitch sees financing growth moderating in Saudi Arabia.

“In the first six months of this year, deposit growth was above lending growth and that wasn’t the case in 2022,” says Lopatin, who points out that if banks’ funding base is growing faster than financing, that reduces pressure on liquidity.

Liquidity levels

Broadly speaking, liquidity is still healthy in Saudi Arabia. Low-cost current account and savings account (Casa) deposits in Saudi Arabia are still among the highest in the GCC, and there is a strong cash-rich government behind the banks in case of need.

After some liquidity tightening in 2022, the Central Bank (Sama) placed SR50bn ($13.3bn) of deposits in the banking sector to reduce the pressure.

“This is a Saudi-specific issue, reflecting that banks’ financing books are growing faster than deposits, and that is putting pressure on liquidity,” says Lopatin.

Casa deposits remain high in the kingdom, even though rising interest rates have led some customers to shift into term deposits. In the first quarter of 2023, Casa deposits still accounted for 56 per cent of total deposits, whereas two years ago the figure was 65 per cent.

“One reason for this [9 per cent decline] is the higher interest rates, but it’s also because banks have been competing for funding to support their growth. There is a huge increase in the cost of funding, but the margin is still very healthy, and the average net interest margin for the first quarter was 3.2 per cent,” says Lopatin.

Despite the higher cost of borrowing – and the attendant risk that this could force clients to default on loans – this should be manageable for most lenders.

“We believe that with adequate controls and policies, asset quality is not a concern at present for the Saudi banking sector,” says Kamco’s Ansari.

“The cost of risk for the sector has been consistently declining over the last quarters and stood at 44 bps, one of the lowest over the last several quarters. This also remains well below the GCC average of 66 bps.”

Loan health

Another source of comfort for Saudi banks is that the higher interest rates are applied to new loans while older loans remain at pre-decided fixed rates.

As a result, non-performing loans (NPLs) are not expected to see any steep increase in the coming quarters – especially, notes Ansari, in light of expectations of rate cuts from next year.

“In the first quarter of 2023, the average NPL ratio was stable at around 2 per cent, and the cost of risk was about 50 bps, which is rather low,” says Lopatin.

In construction and real estate, this could become an issue if higher interest rates result in higher borrowing costs for these companies.

“Not all of them operate with very healthy margins. Thus, their debt service capability will deteriorate. But as of now, we do not see significant upticks in cost of risk or sector average NPL ratios,” says Lopatin.

If Saudi banks are forced to reduce their exposure to real estate, there should be other opportunities for them to grow loan books – not least the Vision 2030-linked series of gigaprojects looking for support. Some of the Saudi banks whose balance sheets have expanded following mergers are now better placed to fund infrastructure projects.

According to the IMF, while mortgage growth has recently moderated, demand for project-related and consumer loans is expected to remain strong, helping offset the impact on profitability from rising funding costs linked to higher policy rates.

This may take a while to materialise. “As of now, we see only moderate financing for companies participating in the execution of the new gigaprojects in Saudi Arabia, but over the longer term, this will support banks’ lending growth,” says Lopatin.

There are other benefits to supporting these projects, not least with the government being the ultimate guarantor, which is positive from an asset quality perspective. 

With a strengthening oil price expected to underpin a Saudi economic renaissance, there should be many more opportunities for growth-oriented Saudi banks to get their teeth into.

https://image.digitalinsightresearch.in/uploads/NewsArticle/11139548/main.gif
James Gavin

Register for MEED's guest program now to access this article.

Click here to register
Exclusive from Meed
Related Articles
  • Kuwait receives bids for Al-Khairan phase one IWPP

    2 June 2026

     

    Two developer consortiums have submitted bids for the first phase of Kuwait’s Al-Khairan independent water and power producer (IWPP) project, according to a source.

    Bids were received by the Kuwait Authority for Partnership Projects (Kapp) on 1 June.

    The facility will have a capacity of 1,800MW and 150,000 cubic metres a day of desalinated water. It will be located in Al-Khairan, adjacent to the Al-Zour South thermal plant. 

    The bidders include:

    • Abu Dhabi National Energy Company (Taqa) / A H Al-Sagar & Brothers (Saudi Arabia) 
    • Acwa (Saudi Arabia) / Gulf Investment Corporation (Kuwait)

    The Al-Khairan IWPP is being procured by Kapp in partnership with the Ministry of Electricity, Water & Renewable Energy (MEWRE).

    The main contract was tendered last September. Three consortiums and two individual companies were previously prequalified to participate in the tender.

    Ernst & Young, BNP Paribas, AtkinsRealis and Addleshaw Goddard are financial advisers on the project. Chadbourne & Parke is acting as legal adviser.

    The winning bidder will sign a set of public-private partnership agreements covering financing, design, construction, operation and transfer of the project. The energy conversion and water-purchase agreement is expected to cover a 25-year supply period.

    Future phases

    The Al-Khairan IWPP project is expected to run on low-sulphur fuel oil as the primary fuel and to accommodate crude oil, gas oil and natural gas as backup fuels. Future phases will further expand capacity.

    It is understood that the estimated $750m second phase of the Al-Khairan IWPP project will add a further 1,800MW of generation capacity through a combined-cycle gas-fired power plant.

    The project, first mooted over a decade ago, remains in the early development stages, with no plans currently to advance to procurement in 2026, a source said.

    According to the source, the immediate focus is on advancing plans for the 3,600MW Nuwaiseeb power and water desalination IWPP project.

    The Nuwaiseeb IWPP plant will have a desalination capacity of 75 million imperial gallons a day.

    Kapp plans to release a transaction advisory tender for the project by the end of the year.

    > Be recognised among the best in the industry at the MEED Projects Awards 2026 …

    https://image.digitalinsightresearch.in/uploads/NewsArticle/17072685/main.jpg
    Mark Dowdall
  • Doosan confirms Saudi Jafurah 2 cogen contract

    2 June 2026

    South Korea’s Doosan Enerbility has confirmed it has signed an engineering, procurement and construction (EPC) contract worth about $556m for the second phase of the Jafurah combined heat and power (CHP) plant in Saudi Arabia.

    The project is being developed by Korea Electric Power Corporation (Kepco) in partnership with Saudi Aramco.

    Doosan said the contract covers design, equipment supply, installation, construction and commissioning of the facility.

    The Jafurah CHP phase 2 project will be built near the Jafurah gas field, about 400 kilometres east of Riyadh. Once operational, it will generate 330MW of electricity and produce 465 tonnes of steam an hour for the nearby gas field.

    According to the firm, the project’s main steam turbine will be supplied by Doosan Skoda Power, a subsidiary of Doosan Enerbility.

    WSP is acting as the project management consultant for the project, which is scheduled for completion in 2029.

    The Jafurah gas development is part of Aramco’s $3.2bn unconventional resources programme, which aims to develop shale gas in three areas. Jafurah lies southeast of Ghawar, the world’s largest conventional oil field.

    The programme is part of Riyadh’s plans under Vision 20230 to ensure the kingdom remains self-sufficient in gas supply amid rising demand from the residential and industrial power sectors.

    Jafurah phase one

    In February 2025, MEED exclusively reported that talks were under way to expand the capacity of the $500m Jafurah cogeneration independent steam and power plant (ISPP).

    Construction works were completed on the facility last November.

    At the time of its procurement, the plant’s first phase was to have a power capacity of 270-320MW, and a low-pressure (LP) steam demand of 77-166 thousand pounds an hour (klb/hr) and high-pressure (HP) steam demand of 29-126 klb/hour by 2023.

    The LP and HP steam demand will increase to 283-373 klb/hr and 66-321 klb/hr by 2027, respectively.

    The oil giant issued the letter of award to Kepco for the contract to develop the Jafurah ISPP scheme in July 2022.

    Kepco subsequently awarded South Korea’s Doosan Heavy Industries & Construction the project’s EPC contract.

    US/India-based Synergy Consulting provided financial advisory services to Kepco on its bid.

    Sumitomo Mitsui Banking Corporation (SMBC) served as the client’s financial adviser for the project. Germany’s Fichtner Consulting Engineers is technical consultant, while the UK’s Wood Group is project management consultant.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/17072199/main.jpg
    Mark Dowdall
  • Al-Mabanee submits lowest bids for Kuwait infrastructure

    2 June 2026

    Kuwait’s Public Authority for Housing Welfare (PAHW) has opened commercial bids for two major infrastructure and public buildings packages at South Al-Mutlaa Residential City.

    Local firm Al-Mabanee United Company has emerged as the lowest bidder for both contracts, submitting combined offers worth KD44m. Both packages entail the construction, completion and maintenance of services, infrastructure works and public buildings for different district centres within the city.

    The first contract covers the infrastructure and public buildings for the N3 District Centre. PAHW received proposals from eight bidders, with Al-Mabanee United Company submitting the lowest price at KD20.9m. The second-lowest offer was submitted by The Contractor General Trading & Contracting Company at KD22.4m, followed by Golden Engineering Group for General Trading & Contracting at KD22.7m, though Golden Engineering Group was flagged for not providing a bid bond.

    Al-Khonaini General Trading & Contracting Company, operating as Inshat Al-Khonaini, ranked fourth with a bid of KD22.7m, followed closely by Kuwait Industrial Centre Company at KD22.8m. Combined Group Contracting Company submitted a bid of KD23.8m, Al-Dar Engineering & Construction Company bid KD25.7m, and China’s Sichuan Road & Bridge Group Corporation submitted the highest active proposal at KD29m. 

    The second contract is for identical infrastructure and public building works at the N1 District Centre. Al-Mabanee United Company submitted the lowest bid of KD22.8m. Its closest competitor was The Contractor General Trading & Contracting Company, which submitted an offer of KD23.9m.

    Al-Khonaini General Trading & Contracting Company came in third with a bid of KD24.2m, followed by Kuwait Industrial Centre Company at KD24.4m and Golden Engineering Group for General Trading & Contracting at KD24.4m. Combined Group Contracting Company placed a bid of KD26m, Al-Dar Engineering & Construction Company bid KD26.5m, and United Construction Company, known as Al-Inshat Al-Muttahida, submitted an offer of KD 30.9m. Al-Ghanim International General Trading & Contracting filed the highest bid at KD344m and was also noted for lacking a bid bond.

    South Mutlaa Residential City is a large-scale planned development designed to accommodate around 400,000 residents in a modern, fully serviced urban environment. Once completed, it will offer contemporary housing alongside extensive logistical services and a wide range of public and commercial areas, including hospitals, schools and other social services.

    The project also includes major infrastructure works such as approximately 150 kilometres of roads and related structures, lighting and other public works, as well as integrated systems for water distribution, rainwater collection and sewage. In addition, it will provide the civil infrastructure needed for electricity distribution, telecommunications networks and traffic control to support a well-connected, functional city.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/17071938/main.gif
    Colin Foreman
  • Local developer secures finance for three Riyadh projects

    2 June 2026

    Qimam Noshoz for Real Estate Development Company, a subsidiary of Saudi Arabia’s Banan Real Estate Company, has signed a sharia-compliant credit facility agreement worth SR84m ($22.4m) with Riyad Bank to fund three commercial, hospitality and sports developments in the kingdom.

    The financing agreement is split into two distinct tranches to align with the projects’ development timelines. The first tranche consists of SR49m with a maturity duration of seven years, while the remaining SR35m has been secured for an eight-year term.

    Qimam Noshoz will utilise the capital to fund construction works for the Al-Rahmaniyah Gem and Al-Wadi District Gem projects. Both of these projects are already leased to the fitness operator Armah Sports Company. The other project is an independent hotel located within the Al-Wadi District.

    The Al-Wadi development is designed as an integrated commercial complex spanning approximately 7,818.5 square metres of land, with a built-up area of about 975 square metres. It includes a men’s gym, a women’s gym and a hotel building.

    The Al-Rahmaniyah project is an integrated commercial development combining fitness facilities with retail. The asset features men’s and women’s gyms operating alongside an independent commercial zone.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/17071628/main.jpg
    Colin Foreman
  • SLB wins $385m contract for Kuwait oil research centre

    2 June 2026

    Schlumberger Oilfield Eastern, a unit of the US-headquartered oilfield services company SLB, has been awarded a KD118m ($385m) contract to develop an oil and gas research centre in Kuwait.

    The contract was awarded by the state-owned upstream operator Kuwait Oil Company (KOC), according to a report by Kuwait’s Al-Rai newspaper.

    The Ahmadi Innovation Valley (AIV) project is planned as an advanced research and innovation hub equipped with specialised facilities and technical teams focused on applied research for Kuwait’s oil and gas sector.

    The contract was awarded after the Higher Purchase Committee (HPC) of Kuwait’s national oil and gas company Kuwait Petroleum Corporation (KPC) determined the bid to be compliant with the project’s technical and commercial requirements.

    In February 2025, KOC signed memorandums of understanding (MoUs) with five international oilfield service companies to support the development of the AIV initiative.

    These companies were:

    • SLB (US)
    • Baker Hughes (US)
    • Weatherford (US)
    • Halliburton (US)
    • National Energy Services Reunited (US)

    Under the preliminary agreements, each of the five companies agreed to establish a world-class research and development centre at the project site, focused on helping KOC meet challenges in the upstream sector.

    KOC’s CEO Ahmad Jaber Al-Eidan had said in February 2025 that the project will enable Kuwait to keep pace with global transformations while investing in advanced technologies to ensure the sector’s sustainability and achieve operational excellence.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/17063475/main.gif
    Wil Crisp