Corporate credit risk across Saudi banks remains contained, S&P says

Despite growing loan portfolios, Saudi banks’ corporate credit risk remains contained due to “a moderate improvement in corporate leverage supported by a resilient performance,” S&P Global said in a recent research note. Total debt at listed Saudi companies, excluding Aramco, rose by 10-12% between 2020 and 2024, fueled by growth in debt held by utilities, real estate, healthcare, and transportation players. That being said, total credit to the private sector rose by c.60% over the same period, according to the note.

Listed Saudi companies have been consistently deleveraging since 2020 as their bottom lines continued to improve, allowing these companies to significantly reduce their debt to EBITDA. The median total debt-to-EBITDA ratio is estimated to have narrowed to 1.6-1.9x in 2024 from 2.0-2.4x in 2020, according to S&P.

EBITDA grew at a slower pace than revenues, as the total combined revenue and EBITDA grew at an average compound rate of 8-10% in the four-year period. Meanwhile, EBITDA was weighed down by higher costs for fuel, freight, and wages — driven by Saudization requirements and market competitiveness — while the competitive environment limited the ability to raise prices. “In some sectors where EBITDA growth exceeded revenue growth significantly, this was primarily due to improved earnings compared to historical losses, which makes the improvement look inflated,” S&P said.

Vision 2030 driving capex + fueling credit demand: Capital-intensive sectors — including energy, healthcare, food and beverages, telecoms, and utilities — saw their combined capex growing at a 65-70% clip, accounting for 94% of the combined capex in 2024. Excluding Aramco, that figure goes down to 37%.

More capex spending will lead to more credit growth — but not all of it will be funded by debt: Capex for the largest rated Saudi companies is projected to continue increasing, albeit at a slower pace, by about 5% annually over 2025 and 2026. That rise in capex will continue to drive overall credit growth in the country, but S&P expects that only a portion of it will be debt funded, thanks to companies’ solid free operating cashflows (cashflows minus capex).

Credit growth rates are forecasted to remain high at 10% for the next two years, on the back of higher demand for investment funding in support of the Kingdom’s 2030 vision. S&P notes that this could expose banks to potential risks if corporate projects face execution failures, cost overruns, or if sustained low oil and petrochemical prices weaken core sectors. These risks could be amplified as Saudi banks turn to external debt, which approaches 5% of domestic loans in August 2025, but strong government support to the banking sector provides a safety net to mitigate these risks.