Saudi Arabia’s private credit market is expected to expand significantly as the Kingdom looks to close the financing gap created by its Vision 2030 transformation goals, according to a new report by S&P Global Ratings.

The agency stated that rising funding requirements and the rapid growth of small and medium-sized enterprises (SMEs) are driving momentum for private capital financing. However, it cautioned that structural challenges could slow the asset class’s broader development.

Saudi Arabia’s total debt — including bank lending, bonds, sukuk, and private financing — grew at a compound annual rate of 12% between 2021 and 2024. Non-bank lending has become increasingly important, although credit instruments remain concentrated among a relatively limited investor base.

“Saudi Vision 2030’s economic and social diversification targets require substantial financing. We believe this presents private capital financing with a significant growth opportunity,” said Zeina Nasreddine, a credit analyst at S&P Global Ratings.

S&P added that with funding demand expected to remain elevated, slower deposit growth is prompting banks to explore alternative funding channels. “Private capital financing, in collaboration with banks, can help meet domestic lending needs, reduce sector concentration risks, and free up capital,” Nasreddine said.

Although still a nascent asset class, private credit in Saudi Arabia has expanded rapidly, accounting for around 2% of total debt in 2024, according to S&P Global Market Intelligence. The market has grown tenfold since 2020, reaching $3.7 billion last year.

Borrowers include government-related entities, large conglomerates, and SMEs across sectors such as petrochemicals, aviation, and digital payments. The investor base comprises Asian investors, Saudi funds, government-related entities, and a major US bank.

S&P expects micro, small, and midsize enterprises to drive future private credit growth, with Vision 2030 targeting an increase in the SME sector’s contribution to GDP from 21.9% in 2023 to 35% by 2030. SME leverage rose from 22% in 2020 to 28% in 2023, highlighting growing demand for credit.

Despite the positive outlook, S&P warned that private credit faces transparency and liquidity challenges compared with public debt markets. Valuations, which rely on mark-to-model approaches rather than market pricing, can vary significantly between managers, creating uncertainty around asset values.

The report also highlighted subdued mergers and acquisitions activity, attributed to high interest rates, as a constraint on private equity exits and investor confidence. “The regional market needs more M&A activity and public exits to demonstrate maturity,” S&P said.

Nonetheless, the agency concluded that systemic risks from private credit remain limited, given its relatively small share of total financing, while noting that the sector is well-positioned to play a growing role in supporting Saudi Arabia’s economic diversification agenda.