All-time high mortgage volumes boost Saudi economy: KPMG

RIYADH: A booming mortgage market has helped fuel economic growth in Saudi Arabia this year, Arab News quoted financial analysts KPMG, as saying.

The firm’s ‘Future Finance’ report claimed businesses operating in the real estate sector are key figures among the kingdom’s non-bank financial institutions (NBFIs), which are helping the economy recover after the pandemic.

KPMG estimates the value of Saudi Arabia’s NBFIs, which include automotive, commercial equipment and other consumer financing firms, at about SR54 billion ($14.5 billion).

This sector plays a pivotal role in lending to certain segments of borrowers within the kingdom.

Khalil Ibrahim Al Sedais, office managing partner at KPMG in Saudi Arabia said growth momentum which began in the second half of 2020 carried through into the first six months of this year.

“It is especially noticeable in the mortgage industry, where volumes were all time high due to domestic demand for housing, low interest rate environment and government guarantee for the first house of a citizen,” he said.

Al Sedais added that NBFIs are expected to continue growing thanks to developments in the Saudi financial services sector, including in anti-money laundering compliance, fintech advancement, cyber-security, business continuity planning and digitalisation.

Currently, more than 35 NBFIs are operating in Saudi Arabia. As at the end of the fiscal year 2020, the total paid up capital of these entities was SR14.2 billion ($3.8 billion).

Real estate companies stand at SR3.9 billion ($1 billion), with non-real estate companies at SR8.8 billion ($2.3 billion).

Saudi Real Estate Refinance Company (SRC), as the refinancing entity of the industry, comes in at SR1.5 billion ($403 million).

Industry-wide total assets were SR 53 billion ($14.2 billion) by end of fiscal year 2020, and there was an outstanding loan book, on and off-balance sheet, of approximately SR54 billion ($14.5 billion).

This included the real estate companies’ loan book of SR23.5 billion.

There was on-balance sheet loan portfolio growth of 16 per cent, compared with 2019, consisting of SR3.97 billion, according to KPMG.

Despite SAMA’s new regulations allowing deposit-taking by finance companies, NBFIs are highly dependent on borrowing and securitisation as the main source for financing their lending activities.

At the end of 2020, equity and liabilities totaled SR53 billion of which, liabilities accounted for 63 per cent, while capital and reserves represented 27 per cent and 10 per cent, respectively.