Saudi banking sector’s operating environment still ‘resilient’: Moody’s

Ashraf Madani, Vice President and Senior Analyst at Moody’s

Ashraf Madani, Vice President and Senior Analyst at Moody’s Investors Service, said that the operating environment of the Saudi banking sector remains resilient and will likely continue to be so in the coming period, thus supporting banks’ profitability and financial stability despite some challenges related to funding and liquidity.

Responding to a question from Argaam during a media briefing, Madani added that the Saudi banking sector continues to demonstrate high resilience in the face of funding pressures.

He noted that banks have so far managed to bridge the funding gap in the local market, thanks to their ease of access to international markets, although such access remains relatively limited compared to their global peers.

The loan-to-deposit ratio has risen to about 114-115%; this ratio has either reached or is nearing its peak. As a result, banks are likely to become more selective in granting credit during the next financing cycle, according to the top executive.

Madani further stated that demand for credit remains strong, while the supply side may witness some slowdown. This is because banks are expected to reduce the number of approved financing applications in line with the pace of deposit growth to maintain liquidity and profitability balance.

He stressed that the continued strength of the operating environment and funding flexibility will support credit growth over the medium term, despite challenges associated with higher funding costs and lending rates.