(MENAFN) Saudi Arabia's banking sector remains stable as the oil-rich country experiences strong economic activity and credit growth is backed by the positive effects of high government spending and increased private-sector business activity, Moody's Investors Service said in a report.
In its 'Banking System Outlook' report, Moody's said the key drivers of the outlook are a benign operating environment; low problem loan levels; strong loss-absorption capacity, underpinned by high capital buffers and solid profitability; and the sector's stable, low-cost deposit base and ample liquidity.
However, these system-wide strengths will remain faced by challenges including high loan and deposit concentrations and the financial opacity of certain family conglomerates, over the 12-18 month outlook period, Moody's warned.
Moody's sees that problem loans (defined as loans overdue by 90 days) to gross loans would drop below the December 2011 level of 3 percent.
Moody's expects the Kingdom to have a real GDP growth of 6 percent in 2012, which will drive a moderate improvement in the banks' asset quality.
However, Moody's says that asset quality still faces event risks, due to the continued high, albeit declining, single-party exposures in the banks' loan books.
Moody's expects Saudi banks to continue having robust internal capital-generation, allowing them to absorb substantial losses without eroding capital.