Rapid credit growth has reduced the availability of liquidity in the Saudi banking sector, said S&P Global Ratings in a new report titled “Saudi Banking Sector 2023 Outlook”.

“The government has large deposits with the Saudi Central Bank (SAMA) but is not deploying this liquidity to alleviate pressure on banks," said S&P Global Ratings credit analyst Roman Rybalkin.

"Whether the government will step up its deposits with the banking system in 2023 is unclear. We expect banking sector credit growth will slow to 10%-12% in 2023-2024, owing to a high base effect, higher interest rates, and tighter liquidity.”

Corporate demand is likely to increasingly drive credit growth as Vision 2030 projects are implemented. However, high rates may result in a portion of deposits migrating to interest-bearing instruments, with downside for banks' margins.

“We expect the sector's return on assets to improve only modestly to 2.0%-2.1% in 2023-2024,” Rybalkin added. – TradeArabia News Service