The global credit rating agency S&P Global (S&P) issued a recent report highlighting the strong performance expected for the banking sector in the Kingdom of Saudi Arabia, predicting that loan growth at Saudi banks will maintain its strong momentum at levels close to 10% during 2026. This accelerated growth is driven by the great economic activity that the Kingdom is witnessing, which is pushing banks to increase their reliance on external financing to meet the growing demand.
Increased external debt to finance expansion
The agency explained in its report that Saudi banks will continue to increase their external debt, as their surplus has seen a slight decrease due to the significant increase in external liabilities over the past two years, coinciding with the continued outflow of large investments abroad. The data indicates a dramatic jump in the banks' net external debt, which increased fivefold to reach a record high of $54.6 billion by the end of 2025, compared to just $9.1 billion at the end of 2024.
Growth context: Vision 2030 and mega projects
These figures cannot be viewed in isolation from the radical economic transformations the Kingdom is undergoing under the umbrella of "Saudi Vision 2030." The increased demand for credit reflects the accelerated pace of work on mega-projects and infrastructure projects, in addition to the growth of the housing and business sectors. Saudi banks are playing a pivotal role in the financial engine of this vision, necessitating the exploration of diverse funding sources, including international markets, to ensure the continued flow of necessary liquidity into the veins of the national economy.
Geopolitical risks and the resilience of the banking sector
Regarding regional challenges, the S&P report addressed the potential credit impact of any geopolitical escalation between the United States and Iran. The agency anticipated that the impact of such tensions would be "limited and localized" in scope and duration, drawing a parallel to the events of June 2025. This assessment reflects confidence in the region's financial stability and its ability to absorb transient political shocks.
Stress and liquidity tests
The agency concluded its report by noting that it had reassessed the performance of banks based on the latest disclosures from regional central banks. The assessments concluded that Gulf banking systems, and Saudi Arabia's in particular, possess a high degree of resilience, enabling them to withstand severe stress scenarios. It affirmed that banks hold sufficient liquid assets to absorb any potential outflows of external funding, thus bolstering the financial sector's resilience against global economic volatility.
