|By Arab News

S&P Sees Strong Financing Momentum Driven by SME Expansion

Saudi Arabia’s private credit market is poised for accelerated growth as Vision 2030 reshapes the Kingdom’s financing landscape, according to a new assessment by S&P Global Ratings. The rating agency notes that large funding needs linked to economic diversification, combined with fast expansion of small and midsize enterprises, are opening wide opportunities for private capital providers.

S&P highlights that total public-sector debt plus private-sector debt covering bank lending, bond issuances, sukuk, plus private capital, expanded at a compound annual rate of 12 percent between 2021 and 2024. Nonbank lending has also gained prominence, although participation remains limited to a relatively narrow investor base.

Funding Gaps Create Space for Private Capital

The report explains that Vision 2030 requires sustained financing at scale, positioning private credit as a complementary source alongside traditional banking. With deposit growth slowing, Saudi banks are increasingly exploring alternative funding channels. Private credit structures can help diversify risk exposure, reduce concentration levels, plus release bank capital for wider economic use.

Despite rapid growth, private credit still represented only around 2 percent of Saudi Arabia’s total debt stock in 2024. Even so, the market has expanded nearly tenfold since 2020, reaching approximately $3.7 billion. Financing has flowed into sectors ranging from petrochemicals plus aviation to emerging industries such as digital payments.

SMEs Emerge as Key Growth Engine

Micro, small, plus midsize enterprises are expected to drive future demand. Vision 2030 targets raising the SME contribution to GDP to 35 percent by 2030, up from 21.9 percent in 2023. S&P estimates that SME leverage climbed from 22 percent in 2020 to 28 percent in 2023, signaling rising reliance on credit to fuel growth.

Borrowers in the private credit space already include government-linked entities, major private groups, plus smaller firms such as travel agencies or food retailers. Investors span Asian institutions, Saudi investment funds, government-related entities, plus international banks.

Structural Challenges Remain

S&P cautions that private credit faces inherent limitations. Compared with publicly traded debt, the asset class offers lower transparency plus reduced liquidity. Valuation practices also vary widely, as pricing relies on internal models rather than active secondary markets.

A slowdown in mergers plus acquisitions activity has further constrained exit options for private equity funds, limiting capital recycling. According to S&P, stronger M&A flows plus public market exits are needed to demonstrate market maturity plus boost investor confidence.

Systemic Risk Still Limited

Despite these challenges, S&P concludes that systemic risk from private credit remains contained, given its modest share of overall financing. Over the medium term, however, the agency expects private credit to play a more meaningful role as Saudi Arabia continues to fund its Vision 2030 ambitions through diversified capital sources.

Original Article:

Arab News. (2025). Saudi Vision 2030 fuels rapid rise of private credit market: S&P. Arab News. Retrieved from https://www.arabnews.com/node/2626220/business-economy