Global banks look to fill ‘huge’ funding gap for Vision 2030

Reuters/Ahmed Yosri

• Size of lending needed for Vision 2030 creates gap in market
• International and regional banks see opportunity
• Construction activity in the kingdom is highest in the world

International banks have spotted an opportunity in Saudi Arabia to meet the “huge financing needs” of Vision 2030, according to an industry expert.

Dr Mohamed Damak, senior director and financial institutions sector lead at S&P Global Ratings, told a media conference on Thursday that Saudi banks will continue to “grow tremendously” but the sheer size of the funding needed to achieve the kingdom’s goals by the end of the decade is so vast that there is a gap in the market for new lenders.

“We’re seeing more and more interest from the international banks and also the regional banks to go to Saudi Arabia and take part in the different projects and the huge financing needs,” Damak said.

• ‘The biggest construction site the world has ever seen’
• Value of Saudi project contracts doubled to $24.6bn in 2022

“We see the big banks in the UAE and Qatar trying to develop the businesses.

“The Saudi banks won’t be able to cater to all the needs coming from Saudi Vision 2030.

“Not so much because the banks are not well capitalised or because the banks do not have enough space, but it’s from a liquidity perspective.

“The needs are so huge that you would also need the capital market to help finance this project.” 

Construction activity in Saudi Arabia was the highest in the world in the final quarter of 2022, a new report by the Construction Activity Index of the Royal Institution of Chartered Surveyors reveals.

A combined $110 billion worth of contracts are expected to be awarded in the GCC this year, with Saudi Arabia accounting for more than half of the total. The kingdom makes up $64 billion of the combined value, according to Middle East data provider Meed Projects’ 2023 outlook. 

Real estate consultants Knight Frank described the kingdom as the biggest construction site in the world, with projects valued at over $1.1 trillion under way.

Saudi’s central bank SAMA says there are currently 36 licensed banks in the kingdom plus 11 local, 22 foreign and three digital lenders.

Nine, mainly digital banks but also some from Iraq, China, Egypt and Jordan, have yet to commence operations.

In its most recent Banking Pulse report, professional services firm Alvarez & Marsal found that the top 10 Saudi banks reported a 9.3 percent quarter-on-quarter rise in profits during the third quarter of 2022.

“Overall, rising interest rates, improvement in asset quality and a strong economic rebound are positives for the banking sector in Saudi Arabia,” Asad Ahmed, managing director and head of Middle East financial services at A&M, said.

“The profitability growth is expected to continue for KSA banks as the interest rate outlook remains in an upward trajectory.”