Saudi banks and capital market poised to drive Vision 2030 objectives: S&P Global 

RIYADH: Saudi banks extended loans worth SR2.67 trillion ($711.5 billion) in March, marking an 11 percent increase as compared to the same month in 2023, according to the latest official data.

Figures released by the Saudi Central Bank, also known as SAMA, showed personal borrowings accounted for 35 percent of this growth, while the remaining 65 percent went to the corporate sector, particularly for real estate activities, as well as electricity, gas, and water supplies.

Real estate financing for corporate dealings specifically surged by 27 percent in the third month of the 2024, marking the highest annual growth rate in 10 months, reaching SR275.2 billion.

A study by Mortor Intelligence, which used 2023 as a base year, estimated the Kingdom’s real estate market at $69.51 billion in 2024, and expects it to reach $101.62 billion by 2029, growing at a compounded annual growth rate of 8 percent between 2024 and 2029.

The surge in real estate and construction endeavors may have heightened the need for debt-based financing primarily sourced from the local banking sector. Saudi banks play a central role in the provision of loans for real estate projects.

According to SAMA data, new retail residential mortgage loans experienced a notable increase, reaching a 14-month high at SR7.63 billion in March. This marked a 5 percent rise compared to the amount granted in the same month last year and a 10 percent increase from the previous month.

In March, lending for home purchases accounted for the largest portion, comprising 64 percent of new mortgages to individuals, totaling SR4.91 billion. The most notable growth, however, was observed in apartment loans, surging by 28 percent to reach SR2.24 billion. Meanwhile, land loans experienced a more modest growth of 4 percent, reaching SR474 million in new mortgages.

One factor contributing to this growth could be the need for residential properties from expatriates arriving in the Kingdom, along with government initiatives aimed at modernizing the financial system.

In a March study by Knight Frank, a notable trend emerged among expatriates, with 68 percent expressing a strong preference for owning an apartment rather than a villa. This inclination was especially prominent among individuals aged 35-45 and 45-55.

Growth in lending for electricity, gas and water supplies came as the second contributor in corporate loans after real estate, registering an annual rise of 27 percent to reach SR147.42 billion in March.

According to an April report by Global Data, the key sectors in the Saudi Arabia power market are the residential sector, commercial sector, industrial sector, and others. In 2023, the residential sector had the dominant share in the power consumption market.

The American International Trade Administration also stated in a January report that Saudi Arabia has experienced rapid economic and population growth since the discovery of oil. The population is projected to increase to 40.1 million by 2030.

Due to limited water resources, the country continues to invest in desalination facilities to meet rising water demands, aiming to deliver 2.18 billion cubic meters per year of desalinated water.

The Ministry of Environment, Water, and Agriculture has allocated $80 billion for water projects, with the wastewater treatment services market also expanding steadily according to the report. In 2021, Saudi Arabia built 133 wastewater treatment facilities, marking a 14.66 percent increase from the previous year.

SAMA data also revealed that financing for professional, scientific, and technical activities soared by 54 percent, hitting SR6.4 billion, marking the highest annual growth rate among sectors.

Education loans also showed robust growth, with an annual increase of 28 percent to reach SR6.27 billion. Additionally, financing for administrative and support service activities rose by 20 percent, totaling around SR34.22 billion.

While the proportion of lending allocated to the scientific and education sectors may currently be modest, the Saudi government acknowledges their pivotal significance in driving the Kingdom’s comprehensive transformation agenda.

Recognizing the paramount importance of innovation and fostering a culture of scientific inquiry, the government has implemented diverse initiatives aimed at nurturing these sectors.

These efforts are believed to have played a part in the gradual increase in lending support extended to these sectors by financial institutions. As the Kingdom continues to prioritize knowledge-based industries and endeavors, further advancements and investments in these areas are anticipated to amplify, propelling the nation towards its ambitious developmental goals.