Saudi credit market to see healthy growth powered by diversification

By Rahul Vaimal, Associate Editor
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As the Arab world’s biggest economy pushes forward with its diversification strategy, the credit market in Saudi Arabia is expected to grow in double digits this year and next, led by an increase in demand for home financing and retail loans.

A research report by S&P Global Ratings predicted that the overall domestic credit market growth will remain stable at 10 percent in 2021 and 2020.

Besides, the rating agency has updated its estimates for domestic private sector credit growth for this year and next. In 2021 and 2022, credit growth is expected to consistently exceed 80 percent of the Kingdom’s gross domestic product, up from a previous projection of 75 percent.

Mortgage portfolios are expected to grow by about 30 percent year over the next two years.

“We anticipate solid mortgage and retail loan growth, supported by government efforts to meet Vision 2030 targets and strong demand for housing from Saudi nationals,” S&P said.

The world’s largest oil exporter is attempting to radically transform its economy and reduce its dependence on hydrocarbon revenue. One of the core pillars of the Vision 2030 transformation strategy is to increase homeownership.

The Kingdom’s sovereign wealth fund, the Public Investment Fund, has also recently announced investment measures aimed at boosting corporate credit growth, primarily in construction-related industries. This will offset the government’s gradual withdrawal of stimulus aimed at easing the effect of the pandemic on businesses.

The corporate sector, especially small and medium-sized businesses, can delay government fees and loan payments as part of Riyadh’s COVID-19 support package.

S&P pointed out all of these indicators suggest that “economic imbalances are in the expansionary … and we see the risks as intermediate, at this stage”.

The PIF, which is at the heart of Riyadh’s economic overall ambitions, has unveiled a slew of massive tourism and entertainment projects. The sovereign wealth fund announced last month that it would invest $3 billion in tourism and infrastructure projects in the Asir region of the kingdom.

The fund has also founded the Saudi Entertainment Ventures Company, or Seven, to invest and construct 20 entertainment destinations, 50 cinemas, and two major theme parks in strategic locations throughout the Kingdom. It is funding mega-projects such as the Qiddiya entertainment zone, which includes a Six Flags theme park, and major new tourism resorts on the Red Sea Coast.

Related: Saudi’s PIF investments to bolster corporate credit growth: S&P