Total assets of Saudi finance companies constitute 1.6% of GDP

The total assets of Saudi finance companies constituted 1.6% of GDP, according to the Financial Stability Report issued by the Central Bank “SAMA”, as the total assets of finance companies during the past year reached 64.2 billion riyals, recording a growth of 12.6% over the year 2022.

The share of total assets of finance companies amounted to 1.6% of the total banking sector, which indicates – according to the Financial Stability Report – a relatively low size compared to the total size of the banking sector assets.

According to the report, the growth of total assets of finance companies by 12.6% is due to the expansion of credit portfolios, specifically through net investments in the short and long term in financial and non-financial lease contracts, which constituted 86.5% of total assets.

The increase in total assets of finance companies shows the positive external factors arising from the increase in economic activity in the Kingdom, whether through financing the activity of micro, small and medium enterprises, or by providing financing to a wider group of individual consumers.

The momentum generated by infrastructure projects and economic development initiatives under implementation in the Kingdom has contributed to the growth of the financial sector on a broader scale.

The report indicated that the Central Bank took the initiative to publish liquidity risk management rules, which came into effect in January 2023 to protect against these risks.

These rules aim to set minimum standards for licensed finance companies, which number 60 companies so far, in addition to maintaining a robust framework for managing liquidity risks under normal and turbulent conditions.

According to the Financial Stability Report, as a result of recognizing the risks associated with the increase in finance companies’ assets and their lending activities, such as credit risks, the Central Bank continues to review and improve its regulatory and supervisory frameworks in response to the changing risk environment in the finance companies sector, as the expansion of credit granting by finance companies may lead to increased liquidity risks, due to the mismatch between assets and liabilities at maturity, as long-term loans are financed through short-term obligations.