Moody’s has announced that the Saudi Arabia banking system outlook remains stable, owing to the Government plans to increase spending for 2019 and stability in funding as modest credit growth partially mitigates sluggish deposit growth, which is expected to support the economy, although growth will remain well below historical averages.

Ashraf Madani, Moody’s Vice President-Senior Analyst, said: “After rising for several years, Saudi lenders’ non-performing loans will stabilise at two per cent to 2.25 per cent in 2019, although the lingering effects of the recent economic downturn mean construction and commerce loan performance will stay under pressure.”

The banks’ profitability is expected to remain solid at 2.2 per cent and their liquidity ample, with liquid assets making up 25 per cent to 30 per cent of banking assets over the next 12 to 18 months.

The Kingdom’s planned spending increase will support economic growth, with non-oil GDP growth expected to strengthen to 2.7 per cent in 2019, from an estimated 2.2 per cent last year as the government increases capital spending.

The rating agency said that extra spending is expected to be used to support objectives set out in Saudi Arabia’s economic diversification plan, Vision 2030.

The recovery in the construction sector, which was severely hit by the 2016/17 economic slowdown, will also drive corporate lending with manufacturing, construction and mining sectors expected to be the largest beneficiaries of the increased government capital spending.

Source: Islamic Business and Finance