Loans provided by Saudi finance firms record 73% jump

RIYADH: 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 percent to SAR 84.9 billion ($22.6 billion) by the end of 2023, compared to SAR 49.3 billion ($13.1 billion) in 2019, according to reports.

Real estate financing took the largest share at 28 percent, while personal financing saw a massive increase of over 666 percent. 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 percent from 2019. According to data from the Central Bank of Saudi Arabia (SAMA), the capital of these companies increased by 25 percent to 15.4 billion Saudi riyals during the same period. 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. The finance sector enjoys high liquidity, with non-performing loans accounting for only 5 percent of total loans by the end of 2023 and this trend is expected to continue due to robust economic growth.

Saudi Arabia’s finance sector continued to grow with net income reaching SAR 1.6 billion by the end of 2023, up by 20 percent from 2019. Additionally, competition has increased as finance companies expand their services and new players enter the market. Residential financing hit SAR23.1 billion by 2023-end, making up 28 percent of total financing. However, real estate finance companies may move 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.