Final Basel III in Saudi Arabia favours mortgages and project finance

Final Basel III in Saudi Arabia favours mortgages and project finance

Fitch Ratings-London: The implementation of final Basel III rules by the Saudi Central Bank (SAMA) from 1 January 2023, consistent with the internationally agreed framework, will favour banks with the largest exposures to residential and commercial mortgage loans and high-quality project finance, Fitch Ratings says.

By contrast, banks with significant exposures to land acquisition, construction and development, financial guarantees and equities will face moderately higher capital requirements. The average capital ratio for the banking sector as a whole will be broadly unchanged, according to the parallel run conducted in 2022 by SAMA.

The final Basel III rules do not change our 2023 credit growth forecast of 12% (2022: 14%) for Saudi Arabia. Some wholesale exposures will consume more capital, but the largest banks can absorb the impact given their solid capital buffers. Saudi Arabia is one of the few jurisdictions to meet the internationally agreed official Basel III implementation date, alongside Australia, Canada, Indonesia and South Korea. This supports our view that SAMA is one of the most sophisticated and conservative regulators in the Middle East and Africa.

Retail-focused banks’ capital ratios will benefit from more granular risk-weightings, generally lower than under the previous regime. As the loan/value (LTV) ratio on residential mortgage