Fitch sees near-term stability, longer-term strain for Saudi banks: Saudi banks’ exposure to Vision 2030 gigaprojects remains manageable for now, but a transition toward operational phases is set to test capital ratios and liquidity in the coming years, Fitch Ratings said in a note on Thursday. While recent recalibrations of project scales have sparked debate, Fitch suggests the immediate risk to asset quality remains low.

Where things stand

Bank financing for gigaprojects currently accounts for just 5-7% of average sector loans. Even when accounting for off-balance-sheet commitments like guarantees, total exposure sits below 10%. This “modest” footprint is largely due to the Public Investment Fund (PIF) acting as the main funding engine, covering roughly half of the USD 115 bn in contracts awarded since 2019.

BUT- The tide is turning. As projects mature and increasingly rely more on bank debt, their higher risk-weighting — typically 80-130% — is expected to place increasing pressure on banks’ capital ratios, Fitch said. To preserve lending capacity, Fitch expects banks to step up the use of capital relief tools like residential mortgage-backed securities and significant risk transfers (SRTs).

It’s already happening: The Saudi National Bank (SNB) is reportedly exploring SRT transactions to unlock capital for additional lending.

AND- Liquidity is tightening: The sector’s loan-to-deposit ratio rose to 113% by the end of 2025 from 110% in 2024, pushing banks to diversify funding sources, including tapping international markets. Bank Albilad, Riyad Bank and Al Rajhi Bank all issued USD-denominated AT1 debt this year, with SNB mulling the same.

Why it matters

The Saudi banking sector is transitioning from a passive observer of Vision 2030 to its primary financial shock absorber. As the PIF diversifies the funding burden, banks are shifting their focus from simple liquidity management to complex balance-sheet engineering. The success of the Kingdom’s credit engine now hinges on the banks’ ability to successfully securitize their mortgage books and tap international debt markets to keep the taps open for the next phase of national development.

Looking ahead

Fitch expects overall lending growth to slow to 10% in 2026 from 11.5% last year, with corporate borrowing continuing to drive expansion and accounting for 80% of new loans in 2025.

Over the long-term, non-gigaprojects will fuel corporate credit demand. Despite new project awards falling by nearly 50% in 2025, the broader non-giga infrastructure backlog remains substantial at USD 435 bn.

Don’t sleep on SMEs and mortgages: SMEs lending is gaining traction, the note said, with its share of total bank lending reaching 11% by 3Q 2025. Because SME loans carry a more favorable 75% risk-weighting under Basel III, they are becoming an attractive, capital-efficient alternative for banks looking to grow without overstretching their ratios. Mortgage securitization is also expected to pick up further in 2026 as interest rates ease, allowing banks to unlock liquidity from their SAR 726 bn mortgage books.

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