Saudi banks are currently restructuring their finances and seeking international loans at an unprecedented rate after years of robust economic growth in the kingdom.
According to Fitch Ratings, it’s anticipated that these financial institutions will borrow around $33 billion in 2025, which is nearly three times the record $10.5 billion borrowed the previous year.
“We believe 2024 will set a new record, and the projections for 2025 are even higher,” stated Redmond Ramsdale, head of Middle East bank ratings at Fitch.
Since about 2020, credit growth has surged as banks support Crown Prince Mohammed bin Salman’s ambitious Vision 2030 plan, aimed at reducing oil revenue reliance while also capitalizing on the booming real estate market.
However, lending isn’t keeping pace with this rapid growth. The rise in loans is outstripping the increase in deposits, creating a liquidity shortage after a decade of extensive governmental spending.
Ramsdale pointed out the challenge, stating that banks can’t maintain credit growth levels due to insufficient deposit increases and a lack of internal capital.
Alvarez & Marsal’s analysis suggests that the loan-to-deposit ratio for the ten largest banks may reach about 106% by mid-2025—a significant jump of nearly ten percentage points compared to the same timeframe in 2023. This stands in contrast to the United Arab Emirates, where the similar ratio exceeds 1,000.
With the liquidity crunch, Saudi banks are increasingly exploring foreign funding options. “They’ve begun tapping into international markets to fill this gap,” noted Ashraf Madani, lead analyst at Moody’s for Saudi banks.
Foreign funding for these banks has risen from 6% of the total in 2020 to an expected 11% by June 2025.
Tim Cullen, a fellow at the Arab Gulf States Institute and former IMF Saudi head, remarked, “The limited foreign borrowing practices of the past now make these banks more appealing to international investors.” He expressed confidence in the Saudi banking system’s robustness and regulatory oversight.
Additionally, banks are issuing subordinated debt to diversify their funding, though this type of debt is riskier due to its lower repayment priority.
In May, Saudi banking regulators granted banks a one-year grace period to address their increased foreign funding reliance.
Some analysts predict that banks may tighten lending as Saudi Arabia adjusts its economic transformation strategies in light of low oil prices and growing debt. Notably, several mega-projects, including the futuristic city The Line, have been scaled back as Riyadh shifts focus to upcoming events like Expo 2030 and the 2034 Soccer World Cup.
Despite these cuts, Saudi Arabia’s economy continues to grow, bolstered by increased oil production quotas and rising non-oil revenues. The IMF recently raised its GDP growth forecast for Saudi Arabia to 4.5% this year, up from 4%, and projects a 4.3% expansion for 2025.
Saudi economist Ihsan Boufraiga suggested that conservative banks ought to reassess their strategies, stating, “If growth remains above 4%, they’ll need to rethink their capital expansion and risk matrices to adapt to current economic realities.”
On the flip side, some rating agencies predict a slight slowdown in lending growth. Ramsdale noted that Fitch expects 2025 lending growth to be around 13%, one percentage point below 2024’s projection, potentially dipping to 10% in 2026.
He explained that banks are “taking a step back to adjust for liquidity issues and capital constraints.” Madani confirmed that Moody’s also anticipates a moderation in Saudi credit growth as funding costs rise.
