Market Overview

The Kingdom of Saudi Arabia (KSA) is known for its robust economy and rapid development. The lending market in KSA has experienced significant growth and transformation in recent years, driven by various factors such as economic reforms, technological advancements, and changing consumer preferences. This market overview provides a brief analysis of the lending market in KSA, including its current state, key players, and future prospects.

The lending market in KSA encompasses various types of lending, including personal loans, mortgages, corporate loans, and Islamic finance products. In recent years, there has been a notable increase in lending activities across all segments, fuelled by rising demand for credit and a favourable regulatory environment.

According to Report Ocean estimates, the KSA Lending Market -in 2022 at a CAGR of $% owing to growing demand for financing penetration in the sector.

KSA's private consumption expenditure has risen, indicating improved living standards and reduced poverty.

Demographic factors influence lending preferences, with under-24 individuals seeking credit for education and ventures, while 25-54 age group seeks loans for homes and cars.

Islamic finance has gained popularity, catering to KSA's predominantly Muslim population.

Digital banking has reshaped the lending landscape, reducing the need for physical bank branches.

KSA Lending Market Analysis

The KSA lending market has shown outstanding growth potential, driven by various catalysts that have fueled the financial landscape in the country. From consumption expenditure trends to the preferences of different age groups, along with the increasing popularity of Islamic finance and the transformative impact of digital banking, these factors have propelled the lending market forward.

The rise of digital banking and online services has reduced the need for physical bank branches. Customers are increasingly using online and mobile banking services for routine transactions- checking account balances, making transfers, and paying bills. This trend has accelerated during the COVID-19 pandemic, with many customers avoiding in-person banking to reduce the risk of infection.

The increase use of digital banking and online services has diminished the need for physical bank branches. Customers are increasingly using online and mobile banking services for day-to-day transactions like - transferring money to vendors, shopping, checking bank balance etc. This trend has accelerated during the COVID-19 pandemic, with many customers avoiding in-person banking to reduce the risk of infection.

Key Trends by Market Segment:

By Retail Loans: Retail loans, also known as consumer loans, refer to credit facilities provided by financial institutions to individuals for personal use. These loans are specifically tailored to meet the needs of consumers for various purposes such as purchasing consumer goods, financing education, covering medical expenses, home renovation, or consolidating existing debts. Retail loans, particularly personal and home loans, are and will continue to be the largest segment for the KSA banking industry, ahead of SMEs and others in the near future as well.

By Other Loan Type: For the pandemic years, the corporate companies felt the economic pressure of global lockdown and thus their overall business was affected. Hence, for those 2 years, the overall lending towards the corporates increased. As of 2022, there are more than 900,000 micro enterprises in Saudi. Hence, they dominate the overall business landscape of Saudi. As the number of micro enterprises increase y-o-y, the total amount of credit disbursed also witness a growth in the market.

Competitive Landscape:

Players in the Saudi Arabian Lending Industry are primarily engaged in providing banking and financial services to individuals and businesses. The KSA lending market is competitive, featuring traditional banks, Islamic banks, fintech startups, and non-banking financial companies. Traditional banks leverage their brand recognition and extensive branch networks, while Islamic banks cater to customers seeking Sharia-compliant financing. Fintech startups bring innovation through digital lending platforms, and non-banking financial companies offer specialized lending services. The competitive landscape in the KSA lending market is characterized by several banks and financial institutions vying for market share. Key players like Al Rajhi Bank, Saudi National Bank, and others offer a range of loan products and services to cater to diverse customer needs. Additionally, international banks may also operate in the market, adding further competition. The market dynamics are influenced by factors such as interest rates, regulatory changes, and the overall economic environment. Innovation and digitalization are becoming crucial for banks to stay competitive and attract customers in this evolving landscape.

Recent Developments:

ITC InfoTech successfully completes 10 years of strategic association with Saudi National Bank

In 2022, Al Rajhi Bank, Saudi 9.7 Mn active digital banking customers for the year under review

Aggressive 145% YoY growth in digital onboarding with 90% of all retail customer accounts opened during the year opened via digital channels.

Amid the ongoing war in Europe, investments in less risky environment are becoming harder to find by investors, and the kingdom of Saudi Arabia has shown to be the most risk-free places to invest in today's time. The rise in oil prices is supporting the government's financial reserves and helping the banking sector, which is experiencing a historic shift in ages.

One major success story is Al Rajhi Bank, the country's largest bank, which announced a significant net income increase of about 40% in 2021, equal to SR14.74 Bn.

The start of 2022 brought about optimism in the Saudi banking sector, with analysts predicting strong revenue growth, robust asset quality, and an array of government projects that would drive loan growth. These predictions were validated as Saudi National Bank, the second-largest bank, recorded a net income increase of over 10% at SR 12.6 Bn.

A month or so later, even with the outbreak of war in Ukraine and the spectre of stagflation, that optimism is largely undiminished.

Future Outlook:

KSA Lending Industry is expected to show increasing and is expected to grow at a CAGR of $% from 2022 to 2027 with Government Initiatives, Adoption of FinTech, and Increased Digitalization.

Gen Z and millennials have been the early adopters of the BNPL payment method in Saudi Arabia, and this trend is expected to accelerate among consumers across different age groups over the next three to four years.

The Saudi Central Bank (SAMA) announced that all Saudi banks will start official implementation of Basel III final reforms starting from January 1, 2023. These rules in KSA favor mortgages and will lead to a credit growth forecast of ~11% in 2023 and future growth.

The Saudi government has been working to boost home ownership rates to 70% by 2030 from 47% in 2016, which will lead to further growth in the home loan market.

KSA has established long-term plans to develop the SME sector and has set up specialized agencies to offer targeted support to SMEs. One of the core objectives of Vision 2030 is to facilitate SMEs' access to funding by encouraging financial institutions to increase the share of loans they allocate to SMEs from 5 % to 20 %. The ultimate goal is to raise SMEs' contribution to national GDP to 35 % by 2030.

KSA supply chain finance and digital transformation summit also highlight the importance of supply chain financing solutions in achieving sustainability and agility in supply chain management and hence increasing the awareness of supply chain financing amongst SMEs.