Saudi banks in strong position to harness the benefits of economic diversification

Saudi banks in strong position to harness the benefits of economic diversification
The Kingdom has actively utilized the debt market to finance its ambitious projects, leading the GCC bond market in the first half of 2024. SPA
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Updated 01 October 2024
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Saudi banks in strong position to harness the benefits of economic diversification

Saudi banks in strong position to harness the benefits of economic diversification
  • Saudi Arabia and Oman are the top two GCC countries with the lowest volatility in non-oil sector expansion

RIYADH: Saudi banks will see their client base expand and earnings increase thanks to government-backed economic diversification efforts that are driving innovation and boosting productivity, according to a new report.

According to Moody’s analysis of banks in the Gulf Cooperation Council and Commonwealth of Independent States, Saudi Arabia and Oman were the top two GCC countries with the lowest volatility in non-oil sector expansion from 2020 to 2023. 

The Kingdom also ranked among the top three for cumulative non-oil growth during this period, along with the UAE and Qatar.

Vladlen Kuznetsov, assistant vice president at Moody’s Ratings said: “Oil-dependent economies in the Gulf, Iraq, Kazakhstan and Azerbaijan are broadening as governments provide funding for diversification initiatives.”

He added: “Barring external shocks, growth in non-oil sectors is poised to exceed 3 percent or 4 percent over the coming years, accelerating from an average of around 1 percent or 2 percent in 2016-2021. This will outpace growth in oil sectors in most cases.” 

Moody’s noted Saudi Arabia’s Vision 2030 aims to cut oil dependence by boosting real estate and tourism with projects like NEOM. Banks, though small relative to the economy, are increasingly funding non-oil ventures and have high-quality loans.




State financing is fueling large infrastructure projects. (SPA)

Slower deposit growth might push them toward unstable market funding. Nonetheless, strong government creditworthiness and ongoing diversification are expected to improve support for banks during economic stress.

The Kingdom has actively utilized the debt market to finance its ambitious projects, leading the GCC bond market in the first half of 2024.

According to a report from Kuwait-based Markaz, the Kingdom raised $37 billion through 44 issuances over this period. Despite these substantial funding needs, Saudi banks maintain healthy balance sheets, with S&P Global Ratings assigning investment-grade ratings and stable outlooks to most major lenders.

The economies of the Gulf states, Iraq, and parts of the CIS remain heavily reliant on oil and gas. However, climate concerns are driving a shift toward new sectors, supported by government diversification efforts.

State financing is fueling large infrastructure projects and offering subsidies to small and medium-sized enterprises in non-oil sectors. 

GCC governments, including Saudi Arabia, Kuwait, and Oman, as well as Qatar, UAE, and Bahrain, are working to reduce their dependence on hydrocarbons through ambitious diversification initiatives – along with CIS countries including Kazakhstan and Azerbaijan.

According to Moody’s, these projects aim to mitigate economic vulnerability to oil price fluctuations and enhance resilience to the global carbon transition, benefiting local banks. However, the full impact of these diversification efforts may take years to realize.

Benefits and challenges of diversification

In oil-dependent economies, domestic banks often focus on narrower non-oil sectors like real estate, construction, trade, and services, as well as some manufacturing, according to Moody’s.

Large oil and gas companies in these economies, being financially robust, typically borrow from global banks rather than domestic ones, limiting the lending opportunities for local banks.

Consequently, domestic banks’ loan portfolios are dominated by a few large entities, and their deposit bases are similarly concentrated.

Most large-scale diversification projects are financed by governments and state-owned enterprises, rather than local banks, which contrasts with more developed economies where such efforts are often bank-funded, the report added.

In GCC countries, the presence of wealthy governments and state-owned firms further reduces the demand for domestic bank loans.

The report mentioned that as these economies diversify, banks will benefit from several factors. They will expand their franchises and improve financial inclusion, as non-oil sectors tend to be more stable than oil sectors, leading to steadier economic growth and increased public wealth.

This wealth boost enhances the creditworthiness of retail borrowers and offers banks more lending opportunities. New companies will emerge, profits will rise as firms innovate, and household incomes will increase.

More lending options will help banks manage risks better and stabilize credit cycles in volatile sectors like retail and construction. With reduced economic volatility, banks will find it easier and cheaper to obtain long-term funding.

Increased monetary and economic stability will attract long-term deposits and foreign investment, improving banks’ funding sources and supporting their growth.

Stable government finances will also enhance their ability to assist banks during difficult times, although these benefits may take years to fully materialize.

The benefits of economic diversification vary across banks and economies due to factors like legal frameworks, rule of law, and corruption according to Moody’s.

Larger banks, especially in developed economies, can leverage diversification more effectively due to their financial strength, supporting growth in sectors like manufacturing and construction.

Banks in Qatar, UAE, and Kuwait are already significant in financing economic development. However, the impact on banks’ loan quality, funding, and government support will depend on their current conditions.

For example, banks in Saudi Arabia with low problem loans may see less impact compared to those with higher problem loans, like in Kazakhstan.

Banks in the CIS and Iraq, where banking sectors are smaller relative to the economy, have the most potential for growth.

Overall, banks in Kazakhstan, Azerbaijan, and Qatar, as well as Oman, the UAE, and Saudi Arabia are well-positioned to benefit from diversification according to Moody’s. They either experience strong economic momentum or have opportunities to tackle key credit challenges, such as franchise growth, loan quality, funding, and government support.

Government role

According to Moody’s, diversification relies heavily on government initiatives and can be hindered by unfavorable commodity price changes or geopolitical shocks.

Countries like Saudi Arabia, UAE, and Kuwait, as well as Qatar, Azerbaijan, and Kazakhstan, have substantial resources for infrastructure and sectoral subsidies, though not all invest significantly.

Saudi Arabia’s government budget expenditures amounted to $344 billion in 2023, reflecting an 11 percent increase from the previous fiscal year. In an announcement in December 2023, the Ministry of Finance projected expenditures of 2024 to total $333 billion. 

This translates into 27.5 percent of government debt to GDP ratio according to IMF World Economic Outlook in April.

This is in comparison to the UAE’s 2024 budgeted expenditures of $17.44 billion and Kuwait’s projected government expenditures of $80 billion, according to announcements by their respective ministries of finance.

According to the IMF, Kuwait’s debt-to-GDP ratio is projected to be 7.1 percent, and the UAE’s is expected to be 30.3 percent

Saudi Arabia boasts one of the highest reserve coverage ratios among Fitch-rated sovereigns, equivalent to 16.5 months of current external payments.

This budget will focus on accelerating the implementation of critical programs essential to achieving the goals of Saudi Vision 2030 according to the Ministry. 

It also highlighted the importance of fostering stronger partnerships with the private sector to advance economic diversification and enhance job opportunities for the Saudi workforce.
 


Most Gulf shares gain on US-China tariff deal; Egypt snaps losing streak

Most Gulf shares gain on US-China tariff deal; Egypt snaps losing streak
Updated 44 sec ago
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Most Gulf shares gain on US-China tariff deal; Egypt snaps losing streak

Most Gulf shares gain on US-China tariff deal; Egypt snaps losing streak

LONDON: Gulf equities ended higher on Monday as the US and China agreed to temporarily slash harsh reciprocal tariffs while US President Donald Trump’s planned visit to Saudi Arabia and Gulf states on Tuesday also raised investor sentiment.

The US will cut extra tariffs it imposed on Chinese imports in April to 30 percent from 145 percent and Chinese duties on US imports will fall to 10 percent from 125 percent, the two countries said on Monday following talks in Geneva. The new measures are effective for 90 days.

Saudi Arabia’s benchmark stock index rose 1.3 percent, the sharpest rise in a month with almost all sectors in the green.

Saudi Aramco gained 2.2 percent after the world’s top oil exporter reported a net profit of SR97.54 billion ($26.01 billion) in the first quarter on Sunday, beating a company-provided median estimate from 16 analysts of $25.36 billion.

Among other gainers, National Industrialization Co. rose 1.1 percent after the petrochemical company posted a quarterly net profit compared to a net loss a year earlier.

Meanwhile, Saudi Arabia and the US are set to discuss a number of blockbuster economic deals during Trump’s visit on Tuesday, with the US poised to offer Saudi Arabia an arms package worth well over $100 billion, sources have told Reuters.

The Qatari benchmark index continued its three-session winning streak and rose 0.7 percent, with most stocks posting gains.

Qatar National Bank, the region’s largest lender, gained 2 percent and Qatar Electricity and Water climbed 4 percent, its biggest rise in more than a year.

Qatar’s main electricity and desalinated water supplier, QEWC said on Monday that Qatar General Electricity and Water Corporation ‘Kahramaa’ has signed a strategic agreement with QEWC, QatarEnergy, and Sumitomo Corporation to build the Ras Abu Fontas Independent Water and Power Facility at a cost of 13.5 billion Qatari riyals ($3.71 billion).

Dubai’s benchmark stock index was up 0.4 percent, helped by a 7.3 percent rise in Parkin and a 2.8 percent gain in Talabat Holding.

The online food ordering company Talabat reported a first-quarter net profit of $103.3 million. The Abu Dhabi benchmark index edged up 0.1 percent with Aldar Properties gaining 1 percent and Fertiglobe rising 2.2 percent.

The fertilizer producer has signed an asset sale and purchase agreement to acquire the distribution assets of Wengfu Australia Pty Ltd.

Outside the Gulf, Egypt’s blue-chip index advanced 0.5 percent after three consecutive sessions of losses. Commercial International Bank rose 1.1 percent and Abu Dhabi Islamic Bank Egypt climbed 3.6 percent.

The lender reported a 43 percent rise in first quarter net profit.


Aviation industry faces supply chain shifts amid global tariff talks, flyadeal CEO says

Aviation industry faces supply chain shifts amid global tariff talks, flyadeal CEO says
Updated 17 min 41 sec ago
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Aviation industry faces supply chain shifts amid global tariff talks, flyadeal CEO says

Aviation industry faces supply chain shifts amid global tariff talks, flyadeal CEO says

RIYADH: Global tariff discussions are already beginning to reshape supply chains in the aviation industry, even before formal policies are enacted, a senior executive has said. 

Speaking at the Future Hospitality Summit 2025 in Riyadh, Steven Greenway, CEO of Saudi Arabia’s low-cost airline flyadeal, explained that as aircraft components are sourced globally, geopolitical shifts are likely to impact logistics, manufacturing, and planning across the sector. 

His comments came just hours after the US and China agreed to temporarily reduce tariffs, with the White House’s levies on most imports from the Asian country dropping from 145 percent to 30 percent, and Beijing’s duties on US goods falling from 125 percent to 10 percent. The move aims to ease trade tensions and allow three more months for negotiations. 

Reflecting on the shift in the global economic order, Greenway said: “What I’m predominantly focused on though is not so much tariffs at the moment, it is more the supply chain.” 

He added: “Interestingly, tariffs are impacting the supply chain ... even before the monetary effect of tariffs is coming, it’s connecting the supply chain because the supply chain is now moving around to try to accommodate and avoid tariffs.” 

The CEO said: “There will be an impact. We’re already seeing discussions around an impact. The magnitude, the scale, I really don’t know.”

Greenway stated that some components of his airline’s engines are made in the US, while the airframes are built in Europe.

While broader trade dynamics present uncertainties, flyadeal is seeing clear internal gains from its latest technology adoption. The airline cut call volume by 80 percent overnight after launching an artificial intelligence-powered chatbot just one month ago, Greenway said. 

“We’re quite late to the chatbot arena ... but we took our time in terms of the technology, the learning, the database that underpins that and so forth,” he explained. “That delay perhaps. or cautiousness, has paid off because we’ve actually deployed something that takes in the learnings of many other airlines.” 

The chatbot currently supports interactions and bookings, and will soon be expanded with transactional capabilities. Greenway emphasized that AI is being used as a support system, not a decision-maker. 

“What we’re doing is we’re using AI not as the decision tool, but a decision support tool; so, keeping the human in the mix,” he added. 

Flyadeal’s digital transformation aligns with Saudi Arabia’s Vision 2030 plan to grow its aviation sector and boost tourism to 150 million annual visitors. The carrier plans to triple in size, expanding to more than 100 destinations with a fleet of over 100 aircraft and a workforce exceeding 4,000. 

Also at the summit, Julien Renaud-Perret, executive director of hospitality at New Murabba Development Co., offered details on Riyadh’s upcoming mega project, the Mukaab. The immersive, cube-shaped landmark is set to host up to 27,000 visitors simultaneously when it opens. 

“Our goal ... is to be able to transport people through technology through screens and holograms into a different world,” Renaud-Perret said. “It could be the ocean, could be Jurassic Park, could be the desert, could be the space.” 

He added that the Mukaab is envisioned to be “an iconic landmark of the city” on par with the Eiffel Tower or Empire State Building. 

The Future Hospitality Summit, running from May 11 to 13, brings together over 1,000 global tourism leaders, investors, and hotel operators. 

Backed by strategic partners including NEOM, Red Sea Global, and the Tourism Development Fund, the event highlights Saudi Arabia’s rapid transformation into a leading global destination. 


IHG to introduce 15,000 additional keys in Saudi Arabia by 2030: top official

IHG to introduce 15,000 additional keys in Saudi Arabia by 2030: top official
Updated 12 May 2025
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IHG to introduce 15,000 additional keys in Saudi Arabia by 2030: top official

IHG to introduce 15,000 additional keys in Saudi Arabia by 2030: top official

RIYADH: UK multinational hospitality giant IHG Hotels and Resorts is planning to add an additional 15,000 rooms in Saudi Arabia, as it eyes opening another 50 hotels in the Kingdom by 2030, according to an official. 

Speaking to Arab News on the sidelines of the Future Hospitality Summit in Riyadh on May 12, Maher Abou Nasr, vice president of operations for IHG in Saudi Arabia, said that the company will add seven new hotel brands in the Kingdom, in addition to the existing six already operating in the country. 

Strengthening the hospitality sector is one of the crucial goals outlined in Saudi Arabia’s Vision 2030, as the Kingdom is steadily diversifying its economy by reducing its decades-long reliance on crude revenues. 

Ahead of the summit, FHS data revealed that Saudi Arabia is set to add 362,000 new hotel rooms by 2030 as part of its $110 billion hospitality expansion plans. 

“We have 45 hotels in the market now, and it includes Makkah, Madinah, Riyadh and all the tourism cities in the Kingdom. And that is close to 24,000 keys currently operating in the market. But our pipeline has 50 hotels. So, more hotels are coming to the market, with 15,000 keys that we are going to be introducing soon,” said Abou Nasr. 

He added: “We have six brands that are operating currently in the Kingdom, but we have seven brands in the pipeline. So we’re going to have 13 brands, in close to five years, that are going to be operating in the Kingdom.”

Abou Nasr further said that IHG is gearing up to meet the rising demand in Saudi Arabia’s hospitality sector, with the Kingdom gearing up to host major international events including Expo 2030 and the FIFA World Cup in 2034. 

Abou Nasr said that 49 percent of the company’s workforce are Saudi nationals, and the new hotel brands will help workers from the Kingdom explore more opportunities in the hospitality sector.

“Those Saudi youth who are going to be working in the Expo and the World Cup are people who are graduating today from high school. They are making their decisions on their career paths today, this year, last year, and in the coming year. So, in this period, we need to reach this pool of talent and attract them to the hospitality industry,” said Abou Nasr. 

“Today we have 49 percent Saudization. Close to 2,000 Saudi nationals work in our hotels, but we want to reach 6,000 by 2030 to be working for us,” he added. 

Abou Nasr added that IHG is getting sufficient support from the Kingdom’s Ministry of Tourism to attract Saudi talents to the company’s workforce. 

Meeting diversification of demand 

According to Abou Nasr, IHG is trying to cater to the needs of demand in different segments, such as midscale and upper midscale, in addition to the traditional luxury offerings provided by the hospitality group. 

“With all the changes that are happening in the Kingdom, we see a big diversification of demand. Not everybody wants to stay in luxury hotels all the time. Having said that, luxury remains our biggest part of the portfolio that’s coming — 60 percent of our pipeline hotels are in the luxury and lifestyle segments,” said Abou Nasr. 

He added: “However, we still see demand now that is coming into different segments, like the midscale and upper midscale. So, Holiday Inn Express is coming to the market, and we’re introducing Garner as well, sometime in the near future, to the Kingdom.”

On the first day of the FHS, IHG and Ashaad Co. signed an agreement to develop three new hotels in Saudi Arabia: Intercontinental and Voco in Alkhobar and Hotel Indigo in Jeddah. 

Citing a presentation made by real estate consultancy JLL at the summit, Abou Nasr said that Saudi Arabia had committed to adding 185,000 keys as part of its offering for FIFA World Cup 2034, and not all of these keys will be in luxury segments. 

Abou Nasr highlighted the growth of the hospitality industry in Saudi Arabia, and said that hotels in Riyadh and Jeddah have started to make profits within one or two months of starting operations. 

“In the past, that used to be a few months before we break even and then start ramping up toward more profits. Today, we are seeing a lot of hotels making profits from the first or second months,” said Abou Nasr. 

He added: “There’s a lot of demand that is happening in those cities. It depends on the location, the brand and the size of the hotel. But hotel investments are proving to be very profitable in this market.”

Maintaining competitiveness

During the interview, Abou Nasr said that IHG is committed to maintaining competitiveness in the market, as the company plans to add 50 new hotels in addition to the 45 already operating in the Kingdom. 

“We are actively working toward renovating many of those hotels that need renovation and bringing them up to speed to cater for the new travelers that are coming to Saudi Arabia,” he said. 

Abou Nasr added that IHG, during the recently concluded Arabian Travel Market, signed a memorandum of understanding with the Ministry of Tourism to collaborate around enhancing the guest experience when travelers come to Saudi Arabia. 

Abou Nasr further said that IHG is committed to maintaining sustainability as the world is trying to materialize the climate goals. 

“We’re working on introducing three energy conservation measures into our hotels that will take care of water conservation within our properties and energy conservation as well. In the future, there are a lot more initiatives to come. This is all guided by our journey to tomorrow, which are our sustainability initiatives at a corporate level,” he added. 

Combating challenges 

Abou Nasr said cooperation with the government has helped IHG to change challenges into opportunities. 

He added that completing the projects within the stipulated timeframes and renovating existing facilities are some of the challenges which are being faced by IHG. 

“We firmly believe that Saudi hospitality is delivered by Saudis. And we’re able now to go and talk to those Saudis at that young age to attract them to the industry with help from the government,” said Abou Nasr.


Saudi crown prince launches HUMAIN to position Kingdom as global AI hub 

Saudi crown prince launches HUMAIN to position Kingdom as global AI hub 
Updated 12 May 2025
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Saudi crown prince launches HUMAIN to position Kingdom as global AI hub 

Saudi crown prince launches HUMAIN to position Kingdom as global AI hub 

JEDDAH: Saudi Arabia’s Crown Prince has launched HUMAIN, a new artificial intelligence company aimed at developing Arabic large language models and establishing the Kingdom as a global hub for AI innovation and leadership. 

Backed by the Public Investment Fund, HUMAIN will operate across the entire AI value chain as an integrated technology firm, the Saudi Press Agency reported. 

HUMAIN’s creation aligns with the broader goals of Vision 2030, the Kingdom’s economic transformation plan, and underscores its ambition to lead in high-tech sectors. The company will support local innovation, develop intellectual property, and attract top global AI talent and investment. 

“Chaired by HRH the Crown Prince, HUMAIN will provide a comprehensive range of AI services, products and tools, including next-generation data centers, AI infrastructure and cloud capabilities, and advanced AI models and solutions,” stated the SPA report. 

“The company will also offer one of the world’s most powerful multimodal Arabic large language models,” it added. 

The firm is also set to drive adoption of AI technologies in key sectors such as energy, healthcare, manufacturing, and financial services. It will consolidate data center initiatives, oversee hardware procurement, and scale deployment of AI solutions regionally and globally. 

AI is expected to contribute SR58.8 trillion ($15.6 trillion) to the global economy by 2030, the Saudi Data and Artificial Intelligence Authority has projected. The sector is also forecast to generate 98 million jobs by 2025. 

PIF and its portfolio companies are actively working to build a thriving AI ecosystem, leveraging Saudi Arabia’s strategic location, economic growth potential, and rising demand for advanced AI research and innovation. 

The Saudi Co. for Artificial Intelligence, a PIF-owned entity established in 2021, serves as the fund’s AI and emerging tech arm, supporting national goals through solutions in smart cities, energy, healthcare, and finance. 

PIF’s strategy contributes to the Kingdom’s ambition of becoming a competitive global player in the digital economy, supporting economic diversification goals as outlined in Vision 2030, the SPA report said. 

In recognition of these efforts, Saudi Arabia ranked first globally in the 2024 Global AI Index for government AI strategy, affirming its leadership in this transformative sector.


Closing Bell: Saudi main index closes in green at 11,488

Closing Bell: Saudi main index closes in green at 11,488
Updated 12 May 2025
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Closing Bell: Saudi main index closes in green at 11,488

Closing Bell: Saudi main index closes in green at 11,488

RIYADH: Saudi Arabia’s Tadawul All Share Index rose on Monday, gaining 142.01 points, or 1.25 percent, to close at 11,488.60.

The total trading turnover of the benchmark index was SR6.13 billion ($1.63 billion), as 216 stocks advanced, while only 28 retreated.

The MSCI Tadawul Index increased by 16.67 points, or 1.15 percent, to close at 1,468.46.

The Kingdom’s parallel market, Nomu, dipped, losing 80.32 points, or 0.29 percent, to close at 27,343.13. This comes as 45 stocks advanced, while 31 retreated.

The best-performing stock on the main index was Saudi Ceramic Co. with its share price surging by 9.95 percent to SR30.40.

Other top performers included Batic Investments and Logistics Co., which saw its share price rise by 7.76 percent to SR2.36, and Naseej International Trading Co., which saw a 7.39 percent increase to SR87.20.

The worst performer of the day was SHL Finance Co., whose share price fell by 3.92 percent to SR19.12.

Maharah Human Resources Co. and Almunajem Foods Co. also saw declines, with their shares dropping by 3.68 percent and 1.51 percent to SR5.50 and SR71.90, respectively.

On the announcements front, Arabian Centres Co. declared its interim financial results for the first three months of the year with net profit amounting to SR222.7 million, a 37.5 percent dip compared to the previous quarter.

The company attributed the decrease to a dip in net fair value gain of investment properties and a rise in the cost of revenues. Higher finance costs, driven by increased debt from development projects, also contributed to the decline.

Cenomi Centers’ shares on the main market traded 0.20 percent lower to reach SR20.08.

Retal Urban Development Co. also announced its financial results for the same period with its net profit dropping by 26.05 percent to SR68.13 million compared to the previous quarter.

The company credited the decrease mainly due to exit from real estate fund during the previous quarter.

Retal’s share price remained stable at SR17.04.

Saudi Awwal Bank announced its intention to issue US dollar-denominated additional tier 1 Capital Sustainable Sukuk through a private placement in Saudi Arabia and internationally. 

The issuance, part of the bank’s $5 billion sukuk program, aims to strengthen its capital base and support long-term strategic goals. 

Joint lead managers, including HSBC, Merrill Lynch, and Citigroup, will oversee the offering, an official statement on Tadawul said. The final terms and value of the sukuk will be determined based on market conditions, the statement added.

SAB’s shares on the main market traded 2.19 percent higher in today’s trading session to reach SR34.95.