The securitization market in Saudi Arabia, especially mortgages, have a promising future, as Saudi banks currently hold a mortgage portfolio valued at approximately $180 billion, representing 23% of the total loans in the banking sector at the end of 2024, S&P said in a report released on Monday.
The report, seen by Asharq Al-Awsat, came shortly after the Saudi Real Estate Refinance Co. launched the first-ever residential mortgage-backed securities (RMBS) transaction as part of a local securitization program to strengthen the real estate mortgage market.
The launch of the first residential mortgage-backed securities program marked a milestone in developing real estate financing instruments in Saudi Arabia, by enhancing liquidity, expanding bank lending capacities, and reducing costs for individual.
It also introduced a new investment instrument that deepens the capital market and enhances its diversification.
On Monday, S&P said banking sector capitalization in the Kingdom is strong and demonstrated by a regulatory capital ratio of 19.6% on Dec. 31, 2024. It noted that the contribution of hybrid instruments has been increasing over the past few years.
“Saudi banks display good asset quality indicators, they are profitable, and their funding profile remains healthy,” the report said.
The rating agency noted that Saudi Arabia has seen substantial changes as part of the Vision 2030 plan.
“The target for 70% home ownership has been one of the contributors to the growth of the economy. Banks have expanded their lending significantly over the past few years leading to some tightening of local liquidity,” S&P said.
However, it added, banks need to attract additional funding sources to continue their expansion and further diversify their investor base.
Over the past few years, S&P said, banks have increasingly resorted to the international capital market to do so, leading to an overall modest net external debt position of 1% of total loans at year end 2024.
In other countries, the credit rating agency said it saw financial institutions tap opportunities offered by asset-backed financings using various asset classes, including mortgages, auto receivables or corporate loans.
It added that in Saudi Arabia, the authorities created the Saudi Real Estate Refinance Company (SRC) to provide liquidity and refinancing solutions for mortgages.
In Augusts 2025, the SRC announced their first RMBS transaction as part of their commitment to capital markets and liquidity development in the region.
S&P then rated Saudi Arabia “A+/A-1” with a stable outlook.
“We raised our rating on March 14, 2025, primarily to reflect improving institutional settings and strong non-oil growth prospects. We project GDP growth of 3.5% from 2025-2028, driven by Vision 2030 investments and consumer demand,” the rating agency said.
Securitization is the process through which homogenous cash flow-generating receivables such as mortgages, auto loans, corporate loans, that are less liquid by themselves, can be pooled and funded through the issuance of tradable securities, in the capital markets, known as asset-backed securities.
Securitization structures aim to isolate the securitized assets from the insolvency risk of the entities that participate in the transaction, particularly the entities that originated and owned these receivables before the securitization transaction.
In doing this, it is possible to achieve a credit rating on the securitized debt that is higher than the credit rating of the originator or seller.
Upon asset isolation, securitization transactions also no longer benefit from any explicit support from the originator or seller of the underlying portfolio of assets, with holders of the securities or support providers absorbing the credit risk from the performance of the underlying assets.
