Private credit finds its place as Saudi banks keep grip on lending

International investors are increasingly backing Saudi Arabia’s private credit market, filling a financing gap for younger, high-growth companies that are still too risky for conventional lenders, according to Alvarez & Marsal’s latest KSA Banking Pulse report.

Not competing with banks: “Saudi banks have sufficient space for lending growth internally within the market,” Sam Gidoomal, managing director and head of financial services for the Middle East, tells EnterpriseAM. The banking sector remains well-positioned to finance the kingdom's economic expansion, benefiting from strong liquidity and healthy balance sheets as well as robust demand from corporates, SMEs, and gigaprojects, Gidoomal adds.

The gap: “Where I think for the moment private credit has a part to play... is some of the newer technology companies that perhaps don’t have proven earnings reports because they’re relatively new,” Gidoomal says.

Unlike banks, which typically require “two, if not three years worth of recurrent revenue, profitability, and cashflow” before extending long-term financing, private credit funds are stepping in earlier to finance companies as they scale, particularly across fintech and other fast-growing sectors, according to Gidoomal. As those businesses mature, conventional lenders are expected to refinance them, although some private credit investors may choose to deepen their exposure instead.

The trend comes as Saudi banks continue to show strong financial fundamentals. Deposits rose 4% in the first quarter, outpacing 1.6% loan growth and reducing the sector’s loan-to-deposit ratio to 104%, according to A&M’s report. Non-performing loans remained at just 0.9%, while banks maintained strong capital and liquidity positions despite lower interest rates.

International appetite for Saudi financial assets is growing, Gidoomal argues, supported by stronger regulation and banks’ increasing use of wholesale funding and sukuk markets alongside traditional deposits. As investors become more familiar with the kingdom’s financial system, he expects more capital will flow into specialist financing rather than directly challenging traditional lenders. “As general appetite considerations improve and increase, I think that’s the next level where you’ll start to see them really participating on a direct lending basis,” he says.

Looking ahead, Gidoomal does not expect another wave of large bank mergers, saying future agreement activity is more likely to center on fintechs and non-bank financial institutions as established players seek new technology and digital capabilities through targeted acquisitions.