Saudi Banks Tap Overseas Markets

Saudi Arabia’s banks are borrowing from international markets at their fastest pace on record, as lenders try to square years of rapid loan growth with a funding base that has not kept up.

The kingdom’s banks raised about $33bn abroad in 2025, roughly three times the previous annual high of $10.5bn set in 2024, according to Fitch Ratings. Redmond Ramsdale, head of Middle East bank ratings at Fitch, said the pace of borrowing had surprised even seasoned observers, after 2024 was already expected to mark a peak year.

Funding gap opens after credit boom

Credit expansion has been running hard since around 2020, propelled by the domestic push to diversify the economy under Crown Prince Mohammed bin Salman’s Vision 2030 programme, as well as strong demand for mortgages in a growing housing market.

Saudi lenders have been central to financing that drive. But the growth in lending has outpaced the growth of deposits, leaving banks with less room to keep extending credit at the same speed.

By mid-2025, the loan-to-deposit ratio for the 10 largest Saudi banks stood at nearly 106 per cent, up by about 10 percentage points compared with the same point in 2023, according to Alvarez & Marsal. That ratio is also far above the United Arab Emirates, where the biggest banks’ loan-to-deposit ratio is about 75 per cent, highlighting how much tighter the funding backdrop has become in Saudi Arabia.

Why overseas money looks attractive

When deposit growth lags loan growth, banks must either slow lending, raise new capital, or widen their funding sources. In Saudi Arabia, the pressure has been intensified by the sheer scale of the kingdom’s investment and construction plans, which have absorbed liquidity across the economy.

Moody’s has pointed to a clear shift in funding composition. Foreign funding rose from about 6 per cent of Saudi banks’ total funding in 2020 to around 11 per cent by June 2025, a material change in a system that historically relied heavily on domestic deposits.

For international investors, the pitch is straightforward: Saudi banks have strong franchises, the system is regarded as well regulated, and overseas borrowing starts from a relatively low base compared with some other markets. That combination can make new issuance easier to place, even as global rates remain a constraint on pricing.

Alongside senior funding, banks have also been issuing more subordinated debt, which can diversify the liability mix and support capital ratios, but comes with lower repayment priority and therefore higher risk to investors.

Regulators tighten buffers

The increase in overseas borrowing has not gone unnoticed in Riyadh. In May 2025, the Saudi Central Bank, known as SAMA, announced it would raise the countercyclical capital buffer from 0 per cent to 1 per cent of total risk-weighted assets, with banks required to comply by May 2026.

Countercyclical buffers are designed to ensure banks build extra capital in good times, so they have capacity to absorb stress in a downturn. Raising the buffer is a signal that regulators want to lean against risk build-up as credit has expanded and funding sources evolve.

The decision also lands at a moment when funding structures matter more. Reliance on wholesale and foreign markets can be stable when markets are open, but it can also add sensitivity to global risk sentiment, swap markets and the cost of hedging.

Vision 2030 meets the limits of balance sheets

The banking shift is part of a bigger recalibration. Some analysts expect Saudi lenders to moderate credit growth as the government adjusts the pace and sequencing of its economic transformation agenda, particularly amid lower oil prices than the highs of the last cycle, rising debt and wider deficits.

Several megaprojects have been reviewed and, in some cases, scaled back. Neom’s futuristic linear city, The Line, has been among the developments under scrutiny, while the government prioritises projects tied to fixed deadlines, including Expo 2030 and the 2034 football World Cup.

Even with that reassessment, the macro picture is not one of stagnation. Saudi Arabia has continued to expand, supported by non-oil growth and changes in oil production conditions. The IMF recently lifted its forecast for Saudi GDP growth this year to 4.5 per cent from 4 per cent, and estimated the economy grew 4.3 per cent in 2025.

Borrowing record does not mean lending can run unchecked

A surge in foreign borrowing can provide breathing space, but it does not remove the underlying trade-offs. Wholesale funding is typically more expensive and more sensitive to market moves than retail deposits. It can also increase refinancing risk if maturities cluster.

That is why some forecasters expect the rate of loan growth to cool. Fitch projected loan expansion of about 13 per cent in 2025, slightly below 2024, followed by a further dip to about 10 per cent in 2026, with banks easing off to manage tighter liquidity and capital demands. Moody’s has also indicated it expects credit growth to ease as financing costs rise and as banks price loans to reflect a more constrained funding environment.

The question for policymakers is how that slowdown is managed. Vision 2030 is built around investment, construction and private sector expansion, all of which depend on the financial system’s ability to extend credit. Yet pushing balance sheets too far can create fragility, particularly if global funding conditions tighten unexpectedly.

A changing risk culture

The debate is also shifting inside the kingdom. Ihsan Buhulaiga, a Saudi economist, has argued that traditionally risk-averse banks need to reconsider their approach, expand capitalisation and update risk frameworks to reflect the scale of economic change now under way.

That view speaks to a broader reality: Saudi banks are being asked to support a far more ambitious investment agenda than in earlier periods, while also operating within global prudential standards and under the scrutiny of international investors.

For now, the record pace of foreign borrowing is best seen as both a symptom and a solution. It reflects a domestic funding system stretched by rapid credit growth, but it also shows lenders adapting quickly, using international markets to keep projects moving while the kingdom works through the next phase of its economic transition.