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In its latest publication, ����ֱ�� Banking Sector Outlook 2025, under the subtitle “Vision 2030 Momentum Continues,” S&P Global Ratings examines the ongoing transformation and key trends in the Kingdom’s banking sector.

The report forecasts robust lending growth of about 10 percent, mainly driven by corporate lending linked to Vision 2030 projects.

Mortgage lending is also expected to grow, supported by lower interest rates and favorable demographic trends in the residential real estate sector.

Although net interest margins are projected to fall by 20–30 basis points by the end of the year as the Saudi Central Bank aligns with the US Federal Reserve’s rate cuts to maintain the currency peg, banks are expected to remain profitable, with earnings sufficient to support continued asset growth.

Stable profitability is anticipated in 2025, with strong lending volumes offsetting the impact of lower margins. The report also notes that banks are likely to continue accessing international capital markets to support growth linked to Vision 2030 initiatives.

S&P expects the ratio of nonperforming loans to rise to about 1.7 percent by the end of the year, up from 1.3 percent in September 2024.

With limited write-offs expected, credit losses are projected at 50–60 basis points over the next 12–24 months, supported by adequate provisioning across the banking sector.

S&P attributed Saudi banks’ strong financial performance to the Kingdom’s robust economic expansion, with gross domestic product projected to grow by an average of 4 percent from 2025–27, up from 0.8 percent in 2024.

S&P provides a balanced, forward-looking assessment of the banking sector, highlighting its resilience, profitability and alignment with Vision 2030

In my view, S&P provides a well-founded and objective assessment of Saudi banks’ financial performance, particularly amid global economic and financial market uncertainties.

The report highlights that the sector’s robust financial standing is closely tied to the favorable economic outlook under Vision 2030, reflecting how banking performance mirrors broader economic trends.

Notably, S&P’s assessment aligns with the Saudi Central Bank’s July 2025 Monthly Statistical Bulletin, reinforcing the sector’s strong financial performance and overall macroeconomic stability.

S&P expects Saudi lenders to continue tapping international capital markets to fund growth linked to Vision 2030, as credit growth outpaces deposits.

The loan-to-deposit ratio rose to 81.6 percent in June, up from 79.3 percent a year earlier, prompting banks to diversify funding through increased bond issuances and external borrowings.

The central bank continues to support lenders’ liquidity needs through its standing facilities, commonly known as the “open repo window.”

Lending activity remains strong, with private sector claims reaching about $834.5 billion as of July 2025. Mortgage lending grew steadily to $248.7 billion in the second quarter, supporting key housing initiatives.

The sector also maintains robust capital adequacy ratios, comfortably above regulatory requirements, with healthy reserve buffers in place.

In summary, S&P provides a balanced, forward-looking assessment of the banking sector, highlighting its resilience, profitability and alignment with Vision 2030.

Despite global economic uncertainties and tighter financial conditions, the sector is expected to maintain stable performance, supported by strong capitalization, prudent provisioning and credit growth.

With corporate lending and mortgage demand rising and banks increasingly tapping diversified funding sources, the banking sector is well positioned to support the Kingdom’s economic transformation.

Vision 2030 remains a key driver of economic diversification, creating new lending opportunities and expanding the financial sector’s role in national development.

• Talat Zaki Hafiz is an economist and financial analyst. X: @TalatHafiz

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