The Saudi finance companies have experienced a notable 12 percent increase in credit facilities in the first quarter of 2024, reaching a total of SR88.6 billion ($23.62 billion), according to data from the Saudi Central Bank (SAMA). Personal finance emerged as the dominant category, representing 28 percent of the total facilities with SR25.12 billion, marking a substantial 23 percent increase.
Residential real estate finance followed, amounting to SR22.91 billion, though its growth was a modest 1 percent, and its share decreased from 29 percent to 26 percent. Auto finance also saw significant activity, with facilities totaling SR22.73 billion, reflecting an 18 percent increase.
Commercial real estate finance accounted for SR4.44 billion, or 5 percent of the total, with a 4 percent growth. Meanwhile, credit card finance, despite representing only 2 percent of the total, experienced the highest growth rate at 32 percent, reaching SR1.36 billion.
Despite these increases, banks remain the primary lenders in Saudi Arabia, with total credit reaching SR2.67 trillion by the end of the quarter. Finance companies' contributions account for just 3 percent of this total.
SAMA has been implementing significant changes since 2022, allowing finance companies to diversify into multiple fiscal activities, including real estate lending. The introduction of licensed debt-based crowdfunding companies and firms authorized for microfinance in 2023 is expected to further diversify the sector, especially by expanding participation from individuals and non-financial institutions.
However, the finance companies' sector faces a concentration risk, as 75 percent of their exposure is in retail loans. This risk is somewhat mitigated by the fact that half of these loans are provided to public sector employees, who typically have more secure employment and a lower likelihood of default.
The sector's funding is predominantly derived from debt and paid-in capital (85 percent), with the remaining 15 percent coming from reserves and provisions. The recent developments in debt-based crowdfunding are anticipated to enhance the sector's activities, particularly in supporting micro, small, and medium enterprises (MSMEs), aligning with Vision 2030 and the Financial Sector Development Program.
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