Saudi Arabia's banking sector maintains robust credit profiles with financial metrics showing lower sensitivity to economic downturns than most Gulf Cooperation Council peers, though growth is moderating after several years of rapid expansion, Fitch Ratings said on January 26.

The kingdom's operating environment scored 'bbb+', the highest in the GCC alongside the United Arab Emirates, underpinned by continued high government spending, ongoing economic diversification and non-oil growth under Vision 2030, as well as progress on giga projects, Fitch stated in its "Saudi Banks - Peer Credit Analysis" report.

Saudi banks have grown at roughly twice the GCC average since the pandemic, though growth began moderating in the second half of 2025. Fitch estimates full-year 2025 growth remained strong at approximately 13%, but expects growth to slow to 10% to 11% in 2026.

The moderation reflects natural credit saturation after several years of rapid expansion and increased competition for funding, which drove a 30 basis point increase in the sector-average cost of funding in the third quarter of 2025 versus 2024 despite interest rate cuts and more stringent capital regulation.

Fitch continues to view funding and liquidity as rating strengths for Saudi banks despite tighter liquidity conditions, expecting this to remain the case in 2026. Banks have preserved meaningful liquidity buffers and strong access to diverse funding sources, supporting resilience during moderating growth and a more competitive deposit landscape.

Common equity Tier 1 capital has declined in recent years as asset growth outpaced internal capital generation. The Fitch-calculated sector-average CET1 ratio stood at 15.3% at end-third quarter 2025, down from 17% at end-2021. Declines in Tier 1 and total capital ratios have been less pronounced, as most banks issued additional Tier 1 and Tier 2 instruments since 2021.

Fitch expects the sector-average CET1 ratio to remain in the 15% to 15.5% range in 2026 on slower growth and strong internal capital generation.

The assessment comes as Saudi Arabia pushes economic diversification under Crown Prince Mohammed bin Salman's Vision 2030 initiative, though the kingdom has recently scaled back some megaprojects including NEOM due to budget constraints and lower oil prices.