Saudi Banks Poised for Growth Amid Economic Diversification Efforts
Saudi banks are expected to see an increase in their client base and earnings as government-backed economic diversification efforts drive innovation and boost productivity, according to a new report.
Top Performers in Non-Oil Sector Expansion
Moody’s analysis of banks in the Gulf Cooperation Council and Commonwealth of Independent States revealed that Saudi Arabia and Oman were the top two GCC countries with the lowest volatility in non-oil sector expansion from 2020 to 2023.
Accelerating Non-Oil Growth
Saudi Arabia also ranked among the top three for cumulative non-oil growth during this period, along with the UAE and Qatar. Vladlen Kuznetsov, assistant vice president at Moody’s Ratings, highlighted that growth in non-oil sectors is set to exceed 3-4% over the coming years.
Government Support Driving Diversification
Oil-dependent economies in the Gulf, Iraq, Kazakhstan, and Azerbaijan are broadening with government funding for diversification initiatives, according to Kuznetsov. Saudi Arabia’s Vision 2030 aims to reduce oil dependence by boosting real estate and tourism.
Challenges and Benefits of Diversification
While slower deposit growth may push Saudi banks towards unstable market funding, strong government creditworthiness and ongoing diversification efforts are expected to provide support during economic stress. The Kingdom has actively utilized the debt market to finance ambitious projects.
Impact on Banking Sector
As economies diversify, banks stand to benefit from expanding their franchises and improving financial inclusion. Banks in GCC countries may see increased lending opportunities and financial stability as non-oil sectors grow.
Government Role in Diversification
Diversification heavily relies on government initiatives, with countries like Saudi Arabia, UAE, and Kuwait investing in infrastructure and sectoral subsidies. Saudi Arabia’s government budget expenditures reflected an 11% increase in 2023, with a focus on achieving the goals of Saudi Vision 2030.