Saudi Arabia’s banking regulator expects the kingdom’s relatively small mortgage market to double in size within the next five years as the government pushes to increase home-ownership among its citizens.
The most recent data indicate a growth of 168 per cent in mortgage loans provided by commercial banks in the kingdom. Housing loan deals finalised by finance companies also rose by 79 per cent, Fahad Alshathri, deputy governor for supervision at Saudi Arabian Monetary Authority (Sama) told the annual Corporate Restructuring Summit in Dubai on Wednesday.
Banks in Saudi Arabia signed mortgages deals worth 27 billion Saudi riyals (Dh26.4bn) in total last year. Total mortgage loans reached 15.27bn riyals at the end of the second quarter of this year, according to the latest data on Sama's website. Mortgages underwritten by finance companies at the end of 2018 climbed to 2.49bn riyals, and 1.16bn riyals worth of home loans had been written by the end of the second quarter of this year, the data showed.
Saudi Arabia, the biggest economy in the Arab world, is pursuing a target of increasing home ownership from 50 per cent in 2016 to 60 per cent by 2020, under a state-backed housing programme that encourages lenders and financing companies to allocate more funding to mortgage financing deals. Provision of housing is among the key pillars of Vision 2030, the kingdom’s overarching social and economic reform agenda.
“We are seeing the reform process also bearing fruits in the banking sector with greater consumer sector lending,” Mr Alshathri said.
Riyadh’s willingness to tap debt capital markets and its emphasis on lending to small- and medium-sized enterprises are also opening up avenues of growth for banks in the country, Mr Alshathri noted.
Banks in Saudi Arabia have lent 105bn riyals to SMEs, which represents a growing proportion of 5.9 per cent of banks total loans portfolios in the kingdom. Finance companies loaned a total of 8.1bn riyals to the sector, accounting for more than 17 per cent of their total lending portfolio, he said, citing the latest Sama data.
“We have also seen growth in bank investment books over the last few years. We see this as another potential growth area that we believe will continue to boost bank[s’] net interest margins in the years ahead,” Mr Alshathri said.
Investments by banks in both the public and private sector have gone up from approximately 8 per cent at the start of 2015 to over 20 per cent by March this year and the majority of these investments were made in government and quasi-government bonds, he said.
“We see these increased sovereign bond issuances as an opportunity growth area that will likely boost the banking sector profits," he noted.
