Moderate loan growth, rising deposits ease funding pressures on Saudi banks: Moody’s

She expected banks to continue growing at high single-digit rates, noting that the next phase would see greater balance between credit growth and deposit growth.

It will likely take time for the loan-to-deposit ratio to fall below 100%. Banks have also become more focused on returns and value rather than volume growth, as funding costs have gained importance in lending decisions, according to the official.

Regarding funding costs, Hanna said the increase seen in recent years was driven by higher interest rates, as well as a shift among Saudi depositors toward higher-yielding deposits.

Lea Hanna, Assistant Vice President at Moody’s Ratings

This reduced the share of current and savings accounts (CASA) to approximately 50% of total sector deposits, she noted.

Hanna also expects funding costs to become more stable in the coming period as competition for deposits eases somewhat.

On net interest margins (NIMs), she said Moody’s expects them to remain broadly stable, supported by stable funding costs and the repricing of assets to better reflect liquidity premiums and market conditions, while asset yields are expected to remain stable or rise slightly.

Separately, Pier Paolo Vaschetti, Vice President of Ratings at Moody's Ratings, said securitization could provide Saudi banks with an additional source of funding by converting assets held on their balance sheets into new funding instruments.

Pier Paolo Vaschetti, Vice President of Ratings at Moody's Ratings

This will give banks greater flexibility to compare different funding sources and select the most cost-effective options depending on market conditions. It could also help them recycle liquidity and support new lending, he added.

Nitish Bhojnagarwala, Senior Credit Officer at Moody's Ratings

Nitish Bhojnagarwala, Senior Credit Officer at Moody's Ratings, explained that the loan-to-deposit ratio of approximately 109% represents the straightforward accounting measure, while the Saudi Central Bank (SAMA) applies a regulatory loan-to-deposit ratio of around 85%. He stressed that banks are complying with the relevant regulatory requirements.