RIYADH: Saudi Arabia and the UAE are set to account for most of the Gulf\u2019s private-credit growth as economic diversification and infrastructure spending create demand for financing beyond banks, Moody\u2019s Ratings said.\u00a0<\/p>\n
The Gulf Cooperation Council private-credit market is currently worth about $6 billion, compared with $1.8 trillion globally, but is expanding rapidly from a low base, the rating agency said in its latest report.\u00a0<\/p>\n
Economic diversification, large infrastructure needs and financing gaps among small and medium-sized businesses are driving demand for non-bank capital. Moody\u2019s said the market\u2019s growth will be concentrated in Saudi Arabia and the UAE, supported by regulatory reforms, institutional capital formation and government spending.\u00a0<\/p>\n
The trend comes as GCC economies, led by Saudi Arabia, pursue diversification to reduce their reliance on hydrocarbons and expand private-sector activity, driving demand for alternative sources of capital.\u00a0<\/p>\n
Regional tensions and disruptions to oil and trade flows are also making financing more challenging, while Gulf governments continue to fund major diversification and infrastructure projects. Saudi Arabia\u2019s Vision 2030 investment plans are putting pressure on bank balance sheets, creating opportunities for alternative lenders even as banks remain the main source of corporate credit.\u00a0<\/p>\n
\u201cPrivate credit growth in the GCC is likely to be concentrated in Saudi Arabia and the UAE, supported by regulatory reforms, institutional capital formation and unabated government spending,\u201d Moody\u2019s said.\u00a0<\/p>\n
The region\u2019s sovereign wealth funds, which collectively manage about $5 trillion, provide a substantial pool of potential capital for the asset class, dwarfing the size of the local private-credit market.\u00a0<\/p>\n
Tony Hallside, CEO of STP Partners, a Dubai-based alternative asset manager, said the opportunity for private credit in the region was clear, but warned that the quality of expansion would be more important than its pace.\u00a0<\/p>\n
\u201cPrivate credit can make a useful contribution where it addresses genuine financing gaps, particularly among SMEs and mid-sized businesses, or provides borrowers with structures that banks are less suited to offer. It should complement the banking system rather than simply compete for the same borrowers,\u201d Hallside said.\u00a0<\/p>\n
Demand builds beyond banks\u00a0<\/p>\n
Economic transformation is creating structural demand for non-bank lending. Although banks remain central to financial intermediation, private credit is expanding rapidly from a low base and is particularly well placed to address financing gaps for SMEs and sectors requiring flexible structures. \u00a0<\/p>\n
Sovereign wealth funds are also supporting private-credit growth. Their long investment horizons, international expertise and local origination capabilities are expected to deepen the domestic ecosystem and help GCC-focused platforms attract regional and international investment. \u00a0<\/p>\n
Private credit is likely to complement rather than challenge banks. Banks retain dominant deposit franchises and corporate relationships, while private lenders can offer faster execution, greater structural flexibility and longer-duration financing. \u00a0<\/p>\n
Moody\u2019s said conservative leverage, strong covenant packages, transparent valuations, sector diversification and credible restructuring capabilities will determine whether the expansion remains credit positive.\u00a0<\/p>\n
\u201cFor that to remain credit-positive, private credit managers will need to maintain conservative leverage, strong covenant protection and thorough borrower assessment as more capital enters the market,\u201d said Hallside. \u00a0<\/p>\n
He noted that diversification across sectors and borrowers will also be important, given the risk of lending becoming concentrated among the same large projects and companies already served by banks.\u00a0<\/p>\n
\u201cIn a young market, transparent valuations and the ability to monitor, restructure and recover loans are especially important. Growth will be sustainable when capital is matched with sound underwriting and managers can demonstrate how they would manage a full credit cycle,\u201d Hallside added. \u00a0<\/p>\n
Saudi Arabia creates demand, UAE structuring\u00a0<\/p>\n
Moody\u2019s expects Saudi Arabia and the UAE to account for most private-credit growth in the medium term. Saudi Arabia generates the largest volume of prospective lending opportunities, while the UAE provides the legal, regulatory and operational infrastructure through which much of the region\u2019s private-credit activity is likely to be organised and managed. \u00a0<\/p>\n
Saudi Arabia\u2019s Vision 2030 investments, relatively tight banking-system funding conditions and persistent SME financing gaps support the strongest demand outlook in the region.\u00a0<\/p>\n
The UAE, meanwhile, has emerged as a structuring and fund-formation hub, with the\u00a0Dubai International Financial Center\u00a0and the Abu Dhabi Global Market providing established legal and regulatory frameworks for private-credit funds.\u00a0<\/p>\n
Hallside said Saudi Arabia and the UAE are developing complementary roles in the region\u2019s private-credit market. Capital and expertise organized through the UAE can support financing opportunities across the region, including in Saudi Arabia, he said, while the quality of each investment will depend on strong local origination and credit assessment.\u00a0<\/p>\n
\u201cShariah-compliant structures will also remain an important part of serving regional demand,\u201d Hallside added.\u00a0<\/p>\n
Saudi Arabia targets fiscal consolidation\u00a0<\/p>\n
Separately, Moody\u2019s said Saudi Arabia\u2019s wider-than-expected 2026 deficit would be followed by fiscal consolidation in 2027, making spending discipline an important factor in the Kingdom\u2019s borrowing and fiscal decisions.\u00a0<\/p>\n
The credit rating agency said a larger near-term deficit alone does not change its central assessment of Saudi Arabia, with the Kingdom\u2019s established fiscal strengths continuing to support its credit profile. \u00a0<\/p>\n
Moody\u2019s affirmed<\/a> Saudi Arabia\u2019s Aa3 rating with a stable outlook in May, citing the Kingdom\u2019s economic fundamentals, non-oil growth and resilience to regional geopolitical risks.\u00a0<\/p>\n