meed-logo

line1 line2 line3
SIGN IN / REGISTER

Saudi lenders gear up for corporate growth

13 March 2024

MEED's April 2024 special report on Saudi Arabia includes:

> GVT & ECONOMY: Saudi Arabia seeks diversification amid regional tensions
> UPSTREAM: Aramco spending drawdown to jolt oil projects
> DOWNSTREAM: Master Gas System spending stimulates Saudi downstream sector
> POWER: Riyadh to sustain power spending
> WATER: Growth inevitable for the Saudi water sector
> CONSTRUCTION: Saudi gigaprojects propel construction sector
> TRANSPORT: Saudi Arabia’s transport sector offers prospects

 

As Saudi Arabia’s once rapacious mortgage market slows down, lenders in the kingdom are building up their corporate loan books. 

Banks’ exposure to the retail market is steadily reducing as the growth of the mortgage market – the big driver of credit growth in recent years – abates. Saudi lenders reported mortgage lending growth of 8% in the first nine months of 2023, compared to 19% in September 2022.

And where once the split between new business booked by Saudi banks was weighted 60:40 on retail and corporate, the split in 2023 was 50:50.

“We have noticed a decrease in Casa (current account and savings accounts). It used to be almost 70% a couple of years ago, but now it is close to 50%, and it means that the cost of funding is growing too,” says Anton Lopatin, senior director, financial institutions at Fitch Ratings.

Changing landscape

One component of this is the moderation of mortgage financing on the back of tightening subsidies and higher interest rates. “In general, the affordability of mortgage financing is less now and we see banks switching their focus to corporate lending. There’s a bit of reshuffling going on and we think that about 60% of the financing growth in 2024 will be from the corporate sector,” says Lopatin.

While Saudi Arabia's Vison 2030 projects have yet make little impact on local banks’ loan books, the expectation is that this will change, and that major economic diversification initiatives will yield good business for Saudi banks.

In the meantime, these lenders must deal with some near-term challenges in 2024, notably higher liquidity – a contrast to the situation in 2022, when financing growth of 14% outpaced deposit growth at 9%, and higher interest rates intensified competition for funding, according to Fitch Ratings. Data from the Saudi Arabian Monetary Agency (Sama) shows that the kingdom’s money supply surged 10% in January 2024 to reach SR2.72tn ($726bn).

That growth was primarily driven by a significant rise in banks’ term and savings accounts, which recorded a rise of 31% to reach SR864.32bn ($230.4bn). These deposits have attracted savings looking for higher yields.

Government reallocation

Another trend has been that government-related entities (GREs) have made moves to increase deposits in the banking system. According to Fitch, liquidity has been supported by increased deposit inflows from GREs, which grew by SAR147bn ($39.2) or 23% in the 12 months to the end of October 2023. Another ratings agency, S&P, noted that the contribution of government and GRE deposits increased to 30% of the total by 2023 from almost 20% in 2020.

According to Fitch, these inflows are mainly term deposits, which are an expensive source of funding for banks. This increase, plus higher competition for funding, has significantly raised the average cost of funding for Saudi banks; it rose to 2.7% in the first nine months of 2023, compared to just 0.4% in 2021. 

“There’s been a change in how the Saudi authorities are managing GRE liquidity,” says Lopatin, who notes that GREs are now choosing to invest their surplus liquidity in higher income-generating deposits with commercial banks, rather than with Sama.

“Since July last year, we’ve seen a significant increase in government-related deposits in the banking sector. And we understand they have adjusted this approach, and now the government entities directly deposit with banks, instead of using the central bank as an additional chain into distribution of liquidity. That is also more efficient.”

Challenging conditions

Banking conditions in Saudi Arabia are looking more challenging in 2024 than in previous years. As Fitch notes, Saudi banks on average saw financing growth slightly above 10% for 2023, and the expectation is that growth will also be about 10% in 2024 – below the expansion of 14% seen in 2022.

Some banks that used to have stronger net margins have reported declines because of the focus on mortgage financing –which is under fixed rates in the kingdom – in conjunction with an increased cost of funding on the back of a declining proportion of Casa accounts. For example, Al Rajhi Banking & Investment Corporation reported that funding costs increased by 74% in year-on-year terms in 2023.

“Al Rajhi’s margins were under pressure last year but are now roughly in line with the sector average of 3.2%,” says Lopatin.

In general, UAE banks reported stronger margins than Saudi banks in 2023, says Lopatin. This is because, in combination with tightening liquidity, Saudi lenders have less ability to manage their margins.

Corporate lending in the kingdom will likely receive a boost from Vision 2030 projects.

“We expect more Vision 2030-related financing to appear on banks’ books this year. It’s still not very material, but most banks want to participate as they see these projects as having a decent balance between risk and reward,” says Lopatin.

Rating agency S&P has said that Saudi banks will need stronger access to international capital to sustain growth and continue financing projects related to Vision 2030. For now, the dependence of Saudi banks on external funding is limited.

Over the long-term, if Saudi banks do build more external debt, that could pose another challenge. International investors now have sustainability at the centre of their investment mandates, and local lenders will also need to look more seriously at their own sustainability metrics.

For example, last year, a panel of UN-appointed human rights specialists was reported to have sent letters to Saudi Aramco and financiers including Citi, Goldman Sachs and BNP Paribas, noting that their financing of the state energy company may be in violation of global human rights rules due to the company’s contribution to climate change. The letter urged the banks to take reasonable steps to prevent or mitigate the impact.

If Saudi banks do become major lenders to Vision 2030 schemes, and therefore need to source funds from outside the kingdom, they too will have to acclimatise to the new global reality – even if that is not a pressing requirement right now.

https://image.digitalinsightresearch.in/uploads/NewsArticle/11587887/main.gif
James Gavin

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

Click here to register
Exclusive from Meed
Related Articles
  • UAE cuts trade and financial links with Iran

    19 August 2026

    Register for MEED’s 14-day trial access 

    The UAE has halted all trade, commercial exchanges and financial transactions with Iran until further notice, the Ministry of Foreign Affairs said on 19 August.

    The suspension has been imposed in light of escalations that undermine regional and international peace and security, the ministry said. It did not specify a timeframe for any resumption.

    The ministry rejected allegations regarding the status of the economic relationship between the UAE and Iran, and restated the UAE's commitment to dialogue, cooperation and regional integration as means of advancing peace, stability and prosperity in the region.

    It said the UAE remains committed to safeguarding the integrity of the financial system, in line with international law and global standards.

    The suspension covers the full range of commercial and financial links between the two countries. The UAE has historically been one of Iran's most significant trading partners, with much of the relationship built on re-export trade routed through Dubai to Iranian ports across the Gulf.

    The ministry statement did not detail the mechanism for enforcing the halt, the sectors affected, or arrangements for existing contracts and in-transit cargo.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/18857953/main0856.jpg
    Colin Foreman
  • Abu Dhabi begins Dar Al-Funoon Saadiyat construction

    19 August 2026

     

    Register for MEED’s 14-day trial access 

    Abu Dhabi-based piling contractor APCC Piling & Marine Contracting has started the enabling works on Dar Al-Funoon, a cultural development near the Saadiyat Cultural District.

    The project, commissioned by the Department of Culture & Tourism – Abu Dhabi, was designed by the late Canadian-American architect Frank Gehry.

    The venue is scheduled to open in 2030.

    MEED understands that the main contract bids are under evaluation and the project is slated for award soon.

    The complex will feature a multipurpose hall with more than 2,000 seats, a 3,500-seat open-air amphitheatre, a 400-seat studio theatre and a 250-seat jazz venue, bringing total capacity to more than 6,000 across its performance spaces.

    The venue will host leading international productions, delivering high-quality cultural experiences for audiences locally, regionally and globally.

    Upon completion, it will become one of the region’s largest performing arts venues.

    The project was announced by Sheikh Khaled Bin Mohamed Bin Zayed Al-Nahyan, Crown Prince of Abu Dhabi and Chairman of the Abu Dhabi Executive Council in June, as MEED reported.

    During a review of the plans, he was briefed on the architectural concept and the development and construction phases, as well as the venue’s advanced technical capabilities, which are being designed to meet the highest international standards for staging major global productions.

    The announcement is part of the ongoing development of Saadiyat Island, which already includes Louvre Abu Dhabi, Zayed National Museum, Natural History Museum Abu Dhabi, teamLab Phenomena Abu Dhabi and the upcoming Guggenheim Abu Dhabi.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/18852155/main4145.jpg
    Yasir Iqbal
  • Contractor wins Dubai Canal drainage deal

    19 August 2026

     

    Register for MEED’s 14-day trial access 

    Local firm Detech Contracting has won an engineering, procurement and construction (EPC) contract to upgrade and rehabilitate the East Dubai Canal stormwater system.

    The project, known as TF-16-C1, is part of Dubai’s Tasreef strategic plan to improve the emirate’s stormwater network, increase flood protection and enhance the resilience of Dubai’s infrastructure.
     
    According to a source, Lebanon's Khatib & Alami has also been appointed as a consultant on the project.

    The works will focus on upgrading existing stormwater infrastructure to increase capacity and improve reliability during heavy rainfall.

    The scope includes upgrading the stormwater drainage system, laying pipelines and constructing manholes and gullies. It also includes the construction of pumping stations and diversion works, site clearance and other associated facilities.

    In February, MEED reported that the municipality had invited consultants to qualify for a contract to supervise three stormwater drainage projects (TF-16-C1, TF-15-C2 and TF-13-C1)

    China State Construction Engineering Corporation announced in July that it had won the EPC contract for the TF-15-C2 stormwater drainage network project located on Umm Suqeim Road in the Al-Barsha and Al-Quoz areas of Dubai.

    MEED understands contractor bids are still being evaluated for the TF-13-C1 project, which focuses on developing a drainage system for the Al-Marmum area.

    Detech has been awarded several packages under the Tasreef programme in the past 18 months.

    These include:

    • TF-16-C1: upgrading and rehabilitation of East Dubai Canal stormwater system
    • TF-15-C1: stormwater drainage system at Al-Wasl Road for communities west of Dubai Canal
    • TF-05-C1: stormwater drainage system in Jebel Ali 
    • TF-04: stormwater drainage system on Sheikh Mohammed Bin Zayed Road and Al-Yalayis Road
    • DS-419: Tasreef rainwater drainage network: West Deira stormwater system upgrade and rehabilitation 

    As MEED exclusively reported, the municipality recently issued a letter of award for the TF-15-C1 project, covering the construction of a stormwater drainage system on Al-Wasl Road and communities west of Dubai Canal.

    The project includes the construction of a gravity-based stormwater pipeline network with diameters of up to 3.5 metres. It is estimated to cost $100m.

    This week, Dubai Municipality also issued three tenders for stormwater and sewerage infrastructure projects serving Hind City, Dubailand and surrounding areas.

    The projects cover drainage networks for Hind 4, connections to the stormwater network in Dubailand and a stormwater trunk line serving Hind 3, Hind 4 and Umm Al-Daman.

    All three have bid submission deadlines of 10 September.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/18850438/main.jpg
    Mark Dowdall
  • Maaden and Aramco sign deal to create joint venture

    18 August 2026

    Register for MEED’s 14-day trial access 

    Saudi Arabian Mining Company (Maaden) and Saudi Aramco have signed a shareholders’ agreement to form a joint venture (JV). Maaden will hold a 51% stake in the JV, while Aramco will own the remaining 49%.

    Before signing the shareholders’ agreement, the two Saudi state-owned companies signed a non-binding heads of agreement in January 2025 aimed at establishing the JV.

    “Combining the strengths of two leaders in their respective fields, the JV will focus on copper and other minerals critical to the energy transition,” the two parties said in a joint statement.

    The JV will focus on exploration across Zone 4, also known as the Transition Zone, within the Arabian Platform in Saudi Arabia. Spanning approximately 182,000 square kilometres – nearly 10% of the kingdom’s total land area – the expected exploration area stretches along a 100-kilometre-wide corridor running parallel to the Arabian Shield.

    “It represents a major new opportunity for mineral discovery in the kingdom,” Maaden and Aramco said.

    Copper, which is increasingly significant for electric vehicles, power networks, energy storage and renewable energy systems, will be a main focus of the JV.

    Copper accounts for more than 20% of the $1.2tn mined-metals market. The copper market is currently valued at about $250bn and is projected to grow to more than $400bn by 2035.

    The JV will also explore for other energy transition minerals, including zinc, lead and rare earth elements, “that are expected to be crucial to industries of the future”.

    “Leveraging advanced computational algorithms, [artificial intelligence] AI, and high-performance computing, the JV intends to target areas most likely to contain copper and valuable minerals, accelerating the path from regional screening to target definition and discovery. This is expected to support long-term sector development, reinforce the kingdom’s role in the global minerals value chain, and help meet rising demand for transition minerals,” the partners said.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/18833329/main.jpg
    Indrajit Sen
  • Kuwait awards oil contract to Baker Hughes

    18 August 2026

    Register for MEED’s 14-day trial access 

    Kuwait’s state-owned upstream operator Kuwait Oil Company (KOC) has awarded a multi-year contract to the Houston-based oil services company Baker Hughes, according to a statement from the US company.

    The contract is focused on accelerating technology innovation in the country’s upstream energy sector, the statement said.

    Baker Hughes did not disclose the contract value.

    It said that the deal positioned Baker Hughes as a key technology collaborator in the Ahmadi Innovation Valley (AIV), KOC’s flagship initiative aimed at establishing an in-country research and innovation hub to address its strategic oil and gas development priorities.

    Under the terms of the agreement, Baker Hughes and KOC will focus on developing and deploying technology solutions that optimise production as well as addressing other issues.

    Baker Hughes said it is planning to use its portfolio of digital and artificial intelligence (AI) automation solutions as part of the deal.

    These solutions are designed to help operators increase recovery from existing wells, lower operating costs, reduce water production and minimise power consumption, it said.

    Baker Hughes chairman and CEO Lorenzo Simonelli said: “Baker Hughes is committed to deeply understanding KOC’s development aspirations and providing the solutions needed to help achieve them.

    “Working together, we aim to deliver tailored technology solutions at scale that improve production performance and efficiency, supporting KOC’s goals to maximise value from their assets.”

    As part of the agreement, Baker Hughes will build a dedicated research and technology development centre in the AIV to deliver technology solutions and build local expertise.

    Kuwait’s oil and gas sector is currently in crisis due to the regional war that started after the US and Israel attacked Iran on 28 February.

    The war has severely disrupted exports through the Strait of Hormuz, which Kuwait relies on in order to ship crude exports.

    Shaikh Nawaf Saud Al-Sabah, deputy chairman and CEO of Kuwait Petroleum Corporation (KPC), the country’s state energy conglomerate, has described the current crisis as the biggest oil crisis the country has faced since Iraq’s 1990 invasion.

    Kuwait relies on the oil and gas sector for more than 90% of government revenues.

    Despite the dramatic reduction in crude exports, Kuwait’s state-owned oil companies continue to tender some projects.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/18833241/main2359.jpg
    Wil Crisp