Corporate lending will remain at the core of the Saudi banking sector's growth, currently accounting for 55% to 60% of banks' loan books, according to S&P Global Ratings.

The total credit to the private corporate sector increased by 60% over 2020-2024, while credit to listed Saudi companies rose by a slower 10%-12%, driven by utilities, real estate, healthcare, and transportation (excluding Saudi oil giant Aramco), stated S&P in its report titled "Saudi Banks: Risks From Rising Corporate Debt Remain Contained.

Despite growing corporate debt and the likelihood of high funding needs in the run-up to 2030, S&P Global Ratings expects Saudi banks' exposure to corporate credit risk to remain contained thanks to a moderate improvement in corporate leverage.

Between 2021 and 2024, the credit that Saudi banks extended to the corporate sector rose to SAR1.6 trillion from about SAR1 trillion. The total banking credit in the kingdom expanded to SAR3 trillion from about SAR2 trillion, stated the report. 

In addition to domestic bank financing, the build-up of external debt accelerated, not only for banks and the sovereign, but also for the corporate sector, with a notable increase in debt securities issuance. 

Having said that, Saudi sovereign wealth fund Public Investment Fund (PIF) and Saudi Arabian Oil Co. (Aramco) still dominate the sector, it added. 

S&P said it expects the debt capital markets to play an increasing role as a funding source in the kingdom.

Between 2020 and 2024, total gross debt at listed Saudi companies declined by about 15%. 

However, most of this decline stemmed from a $55 billion-$60 billion debt repayment by Aramco and a debt reduction in the materials sector led by Saudi Arabian Mining Co. and Saudi Basic Industries Corp. (Sabic). Excluding Aramco, the data suggests about a 10%-12% increase in total debt over the period, with the utilities, real estate investment trust, healthcare, and transportation sectors driving the growth. 

According to S&P, the average share of short-term debt in total debt remained broadly stable across all sectors, at about 35%-36% over 2020-2024, but there is significant variation by sector. 

Sectors with higher working capital funding needs, such as consumer durables and apparel, pharmaceuticals, and capital goods, are more reliant on short-term funding and may face refinancing risks if performance declines.

Listed corporates' short-term corporate debt grew by 25%-27%, outpacing the 10%-12% growth in total corporate debt. At the system level, short-term credit as a proportion of total loans decreased to 36% in 2024 from 39% in 2020, down from 66% in 2000, largely due to the rapid rise in long-term mortgages, said S&P in it review. 

Listed Saudi companies' total debt to ebitda improved over 2020-2024, bucking the upswing in borrowing. This was thanks to a solid expansion in profits over the period, it added. -TradeArabia News Service