Saudi Arabia's efforts to boost its economy and encourage local investments have led to a significant rise in loans provided by finance companies, reaching the highest levels in almost four years.
These loans increased by 73% to SAR 84.9 billion ($22.6 billion) by the end of 2023, compared to SAR 49.3 billion ($13.1 billion) in 2019.
Real estate financing took the largest share at 28%, while personal financing saw a massive increase of over 666%.
Finance companies, different from banks, specialize in providing loans and credit services to individuals and businesses. They aim to finance purchase and sale transactions for goods and services, often charging higher interest rates than banks to make profits.
These companies play a crucial role in providing financial solutions to individuals and businesses facing money problems.
By the end of 2023, Saudi Arabia had 59 licensed finance companies, with total assets of SAR65.5 billion, up by 68% from 2019.
According to data from the Central Bank of Saudi Arabia (SAMA), the capital of these companies increased by 25% to 15.4 billion Saudi riyals during the same period.
Mohammed Al-Faraj, Chief Asset Management Officer at Arbah Capital, explained to Asharq Al-Awsat that the lending surge was driven by Saudi Arabia’s strong economic growth, leading to increased demand for financing from individuals and businesses.
Loans from finance companies have positively impacted the economy by increasing investment, creating jobs, and boosting consumption, added Al-Faraj.
The finance sector enjoys high liquidity, with non-performing loans accounting for only 5% of total loans by the end of 2023.
Al-Faraj expected this trend to continue due to robust economic growth.
He also anticipated continued growth in the finance sector, with net income reaching SAR 1.6 billion by the end of 2023, up by 20% from 2019. Additionally, he predicted increased competition as finance companies expand their services and new players enter the market.
Ibrahim Al-Nwaibet, CEO of KASB Capital, pointed to the Kingdom’s real estate financing developments as the reason for the increase.
Residential financing hit SAR23.1 billion by 2023-end, making up 28% of total financing. However, he foresaw real estate finance companies moving away from the sector toward corporate and other activities.
At the start of this year, the National Housing Company, part of the Ministry of Municipal and Rural Affairs and Housing, announced a reduced financing margin for residential projects in suburbs and urban areas.
This move, in collaboration with four local banks, aimed to benefit the first 10,000 sales contracts without setting salary limits.
