S&P sees overall bank lending growing by 10% this year

S&P projects overall bank sector lending to grow by 10% in 2026, bolstered by a lower interest rate environment and a massive corporate appetite for credit, S&P Global Associate Director of Financial Institutions Ratings Zeina Nasreddine told EnterpriseAM.

Saudi banks are expected to extend USD 65-75 bn in new corporate loans, primarily fueling the utilities and real estate sectors. Mortgages constitute roughly half of the retail lending by banks, which is expected to expand to USD 20 bn in 2026, after it grew 5% to USD 18 bn in the 11 months ending in November.

Liquidity & funding: Despite the government supporting credit growth by injecting deposits, S&P expects the loan-to-deposit ratio to climb above the 113% recorded in November. Banks will continue to resort to external debt to bridge the funding gap, Nasreddine noted.

Lower interest rates are set to boost mortgage lending: Saudi interest rates are expected to see a 50 bps decline this year in line with two quarter-point Fed cuts penciled in by the end of 2026. “The lower rates should stimulate mortgage lending, though corporate lending is expected to remain the dominant force in overall credit growth”, Nasreddine told us.

Profitability pressures: With 50% of bank lending tied to floating rates, interest margins are expected to tighten. However, S&P expects this to be offset by a slight decrease in funding costs, which should help counterbalance the decline in asset yields. “Considering strong lending growth (around 10%) and a slightly higher cost of risk, we project a slight decline in return on assets (ROA) compared to last year,” according to Nasreddine.

Sama is getting more “hands-on” with banks

Sama is also “tightening the screws” on asset management with the recent mandate requiring banks to submit annual liquidation plans for real estate assets acquired through debt settlements with defaulting customer. Nasreddine argues the move could be seen as a proactive exercise in hands-on supervision that aligns with international standards.

“The repossessed assets from debt settlements are currently small — less than 1% of assets — as reported in banks’ financial statements,” Nasreddine told us. “Banks have reported income from the sale of these assets, which points to active management.”

IN CONTEXT- The directive is part of Sama’s broader hands-on supervisory strategy, following last year’s implementation of a 1% countercyclical buffer requirement, set to take effect in May 2026.