articles Ratings /ratings/en/research/articles/240502-your-three-minutes-in-saudi-vision-2030-credit-implications-for-banks-and-corporates-13093953.xml content esgSubNav
In This List
COMMENTS

Your Three Minutes In Saudi Vision 2030: Credit Implications For Banks And Corporates

COMMENTS

CreditWeek: How Are Funds Using Net Asset Value Loans?

COMMENTS

Your Three Minutes In Banking: When Rates Drop, GCC Banks' Profitability Will Follow

NEWS

Four Nedgroup Funds Assigned South African National Scale Fund Credit Quality And Volatility Ratings

COMMENTS

Your Three Minutes In Digital Assets: Tokenized Treasuries Offer A Path To On-Chain Financial Markets


Your Three Minutes In Saudi Vision 2030: Credit Implications For Banks And Corporates

Saudi Vision 2030--the Saudi Arabian government's transformation program to increase the country's economic, social, and cultural diversification--will require around $1 trillion in investments over several years, according to public sources.   Part of this sum will come directly from the government and the Public Investment Fund, but S&P Global Ratings also expect banks and capital markets to contribute a significant amount. In our view, this will inevitably increase leverage in the Saudi private sector and the broader economy, albeit from low levels. The pace and extent of the increase in leverage in the corporate sector remain uncertain.

What's Happening

Lending growth in the Saudi banking system over the past five years was mainly down to a rise in mortgages. This is one reason why we haven't seen lending growth translate into a material increase in publicly listed corporate debt. In addition, companies in Saudi Arabia have been cautious about committing to large capital expenditure due to high interest rates.

The energy, health care, and materials sectors recorded debt-to-equity ratios of 0.5x–0.7x in 2023, which is low compared to other sectors. Companies in these sectors continue to rely substantially on their internal cash flow to finance their working capital and investment needs.

Even though listed companies' leverage remains manageable, we expect that debt is building up in the private sector, that is, among unlisted entities, supporting strong corporate growth. It is worth noting that the structure of corporate balance sheet debt is changing, with a growing contribution from international debt versus domestic debt.

Why It Matters

Structurally higher private-sector leverage could create imbalances and pose asset-quality problems for the Saudi banking system further down the line. The banking system remains in relatively good shape, with strong asset-quality indicators and capitalization overall. We expect banks' sound profitability and conservative dividend payouts to continue supporting their capitalization over the next one-to-two years.

On a positive note, in addition to raising debt, Saudi companies have been active in raising new equity through IPOs in 2022 and 2023, albeit at a slow pace. In the year to May 2, 2024, 13 private companies have announced potential listings on Saudi Arabia's main market and its Nomu parallel market. Along with strong internal cash flow generation, this will help contain the buildup of corporate debt.

What Comes Next

We will continue to monitor debt buildup in the Saudi economy. However, we expect it to be gradual, and potentially concentrated in some companies within the Public Investment Fund portfolio. We expect real GDP growth of 2.2% in 2024 and 5.0% in 2025 for Saudi Arabia. Non-oil growth will contribute a growing share of this because of government-led investments in Saudi Vision 2030 projects.

While large companies still have relatively good access to international capital markets, higher-for-longer rates and geopolitical risk could mean higher spreads for the weakest companies. At the same time, banks will have to find alternative ways to fund their growth (see "Your Three Minutes In Banking: Saudi Banks May Turn To Alternative Funding Options," published April 30, 2024). This is why we expect the increase in leverage to be gradual.

Related Research

This report does not constitute a rating action.

Primary Contact, Banks:Zeina Nasreddine, Dubai + 971 4 372 7150;
zeina.nasreddine@spglobal.com
Primary Contact, Corporates:Sapna Jagtiani, Dubai + 97143727122;
sapna.jagtiani@spglobal.com
Secondary Contact:Mohamed Damak, Dubai + 97143727153;
mohamed.damak@spglobal.com
Research Contributor:Bedanta Roymedhi, Dubai +971 (4) 3727100;
bedanta.roymedhi@spglobal.com

No content (including ratings, credit-related analyses and data, valuations, model, software, or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced, or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor’s Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees, or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness, or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED, OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.

Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P’s opinions, analyses, and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment, and experience of the user, its management, employees, advisors, and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. Rating-related publications may be published for a variety of reasons that are not necessarily dependent on action by rating committees, including, but not limited to, the publication of a periodic update on a credit rating and related analyses.

To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw, or suspend such acknowledgement at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal, or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.

S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain nonpublic information received in connection with each analytical process.

S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.spglobal.com/ratings (free of charge), and www.ratingsdirect.com (subscription), and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.spglobal.com/usratingsfees.

 

Create a free account to unlock the article.

Gain access to exclusive research, events and more.

Already have an account?    Sign in