RIYADH: Saudi Arabia’s banking sector continued its robust lending expansion in March, with total credit reaching SR3.1 trillion ($827.2 billion), marking a 16.26 percent year-on-year increase.
According to data from the Saudi Central Bank, also known as SAMA, this represents the highest annual rise in three years and eight months.
The surge was primarily fueled by corporate lending, which rose from 52.46 percent of total bank credit in March 2024 to 55.19 percent this year. Credit extended to businesses grew by 22.3 percent over this period to exceed SR1.71 trillion.
This shift underscores how businesses are now the dominant force shaping Saudi Arabia’s lending landscape, signaling the economy’s accelerating diversification.
Real estate activities continued to lead within the corporate loan mix, comprising 22 percent of business lending and growing by an impressive 40.5 percent year-on-year to reach SR374.5 billion.
The sector’s continued expansion reflects heightened demand for housing, commercial infrastructure, and new development projects across the Kingdom’s mega-cities and giga-projects under Vision 2030.
Other key sectors included wholesale and retail trade, which held a 12.43 percent share with SR212.8 billion in lending. Manufacturing accounted for 11.05 percent, with SR189.18 billion in loans. The electricity, gas, and water supply sector comprised 10.6 percent, with loans totaling SR181.43 billion.
Each of these areas benefited from increased public and private sector spending and reforms targeting industrial growth and economic resilience.
Notably, education — while accounting for just 0.55 percent of corporate loans — posted the highest growth rate across all sectors at 44.7 percent, reaching SR9.35 billion. This surge aligns with the Kingdom’s efforts to expand educational access and upgrade academic infrastructure in line with long-term human capital goals.
Financial and insurance activities also showed strong momentum, expanding 38.41 percent to hit SR161.23 billion, ranking third in growth after real estate and education. The rise reflects increased demand for financial services, greater insurance penetration, and fintech integration across key economic sectors.
Meanwhile, retail lending stood at SR1.39 trillion in March, growing 9.6 percent year on year. However, its share of total credit declined from 47.54 percent in March 2024 to 44.81 percent this year, reflecting a gradual shift in the banking sector’s focus from consumer finance to business-driven growth.
This moderation in retail lending share comes despite strong performance in personal loans, auto finance, and housing credit, indicating that corporate and commercial financing now command greater attention from lenders responding to market trends and government priorities.
Improved lending quality
According to an April 2025 report by McKinsey & Company, the quality of lending in Saudi Arabia has improved across nearly all major sectors. Based on their analysis of expected credit loss versus lending volume from 2020 to 2023, sectors such as services, finance and insurance, and utilities have shown both increased lending and lower credit risk.
A key finding in McKinsey’s data is that financial institutions in Saudi Arabia are increasingly diversifying their portfolios toward sectors with lower ECL growth and higher lending volumes. For example, the services and financial sectors have exhibited strong improvements in lending quality, while construction and agriculture continue to show relatively higher risk levels.
A bubble chart in the report maps lending volume against changes in ECL, revealing that the Saudi banking sector is pivoting toward sectors with improving credit profiles.
Sectors like manufacturing, trade, electricity, and utilities now dominate lending — not only in volume but also due to their lower risk outlooks. This trend aligns with national efforts to prioritize economic diversification and reduce overexposure to volatile or high-risk sectors.
In the Gulf Cooperation Council, construction and trade sectors are growing steadily — according to McKinsey — at 5 to 8 percent annually, while real estate is expanding around 8 percent, supported by projects across Saudi Arabia and Qatar. Manufacturing is also gaining traction, bolstered by targeted industrial strategies.
Meanwhile, emerging industries such as education, finance, and food services are collectively growing at rates of 20 percent or more annually.
Capital market innovation
McKinsey also noted that Saudi banks are transitioning from a traditional “originate-to-hold” model to a more agile “originate-to-distribute,” or OTD, model. This shift enables banks to issue loans and then offload risk through tools like loan trading, securitization, and syndicated deals, freeing up capital for further lending.
In a milestone for Saudi financial markets, 2025 saw the signing of the Kingdom’s first residential mortgage-backed securities. Legal frameworks are being developed to enable more such instruments, providing capital-light financing options and paving the way for a more liquid corporate bond market.
McKinsey projects that OTD volumes in Saudi Arabia could nearly double by 2030, improving banks’ return on assets and equity through faster lending cycles and increased fee income. This is expected to enhance financial sector efficiency while supporting large-scale projects through innovative funding channels.
ESG and digital transformation
The report also highlighted the growing role of environmental, social, and governance standards in shaping Saudi lending. With national sustainability agendas in place, many banks are embedding ESG principles into their credit frameworks, including the issuance of green bonds and sustainability-linked loans.
At the same time, operational efficiency is improving. Front-office productivity is rising as banks invest in AI-driven analytics, advanced risk modeling, and automation. This not only increases competitiveness but also enables faster, more accurate credit decisions in a dynamic market.
The combined effect is a more resilient, innovative, and inclusive lending landscape — one that supports diversified economic growth while safeguarding financial stability.
With credit demand projected to grow by 12 to 14 percent annually through the end of the decade, Saudi banks are expected to maintain strong momentum.
Still, McKinsey emphasizes that sustained growth will require banks to boost productivity and embrace operational innovation.
Some banks have already shown improvement, but the corporate and investment banking sector still has room to optimize client service and internal efficiency.
Currently, front-office productivity varies widely among GCC banks. Coverage teams in lagging institutions spend just 20 percent of their time on client-facing activities, compared to 30 percent among industry leaders. McKinsey projects that future top performers will raise that figure to 40 percent by 2030 — a shift that will require significant investment in AI and internal digitization.
GCC banks are also closing the gap with global peers in analytics and automation. As these capabilities scale, AI-powered operations are expected to drive faster risk modeling, more responsive lending, and greater agility.
As the region’s markets mature and international competition intensifies, CIB institutions must evolve to offer more sophisticated solutions — such as capital-light lending, securitization, and structured finance.
Banks that adapt and build long-term investor relationships will be best positioned to shape the market and capture the most promising opportunities.
