Operating Environment

Global Landscape

The global economic landscape underwent notable changes in 2025, stemming from trade tensions and increased global policy uncertainty. Higher tariffs were introduced by the United States during the early part of the year, however, adjustments which were negotiated subsequently helped ease some of the uncertainty. Global inflation remained relatively high in early 2025, owing to price increases as tariffs pushed up prices along the supply chain in advanced economies, with costs rising on both inputs and finished goods.

With no further tariff shocks, the global economic landscape witnessed a divergence in monetary policy and inflation trajectories. Inflationary pressures eased across much of Europe and emerging markets, allowing major central banks to adopt monetary easing to support growth, whilst the tariff-induced price pressures compelled the US Federal Reserve to maintain a more restrictive stance for longer than its peers. However, amidst this complex macroeconomic backdrop, the global financial sector accelerated its technological transformation, moving from experimentation to the industrialization of generative Artificial Intelligence (AI) to drive operational efficiency.

Global GDP growth to remain over 3% in 2026E

Source: IMF World Economic Outlook – April 2026

Regional and Local Overview

The growth for the Gulf Cooperation Council (GCC) region remained strong despite the challenging global economic landscape in 2025. Notably, the region largely remained unaffected by US tariffs as oil exports were exempt. Furthermore, ongoing reforms and diversification initiatives undertaken by governments across the region also supported this growth. In the recent past, the GCC has strived to expand its non-oil sectors including services exports, tourism, and transportation. Furthermore, investments served as the key driver of growth in the region, aiding the transition away from energy exports while supporting sustained population expansion. The region’s GDP growth outlook remains broadly stable, with average GCC growth in 2026 expected to remain flat compared to 3.7% in the previous year, upheld by stronger performance in Saudi Arabia, the UAE, and Oman.

GCC growth outlook
remains stable in 2026.

Saudi Arabia showed similar trends, with its non-oil share of GDP improving to 55% in 2025 compared to 40% in 2010. Furthermore, the non-oil economy has outpaced the oil sector almost twofold over the past 14 years.

In line with the country’s Vision 2030 aim to diversify away from oil revenues, the banking industry is expected to play a key role by providing lending and investment support to other non-traditional industries which entail different risk levels. To facilitate this economic transformation, banks are required to update internal risk and compliance guidelines over the coming years.

Supported by monetary policy easing during the year, lending growth for 2025 grew by 12%, driven by corporate lending linked to the Vision 2030 related projects. While net interest margins contract by 18 basis points for the year as the Saudi Central Bank cut interest rates in line with the US Federal Reserve, the banking industry remained profitable, with strong lending volumes offsetting lower margins. For 2026, BSF expects stable margins, supported by continued lending growth.

The banking industry continues to witness rapid change in the information technology sphere, which poses significant opportunities as well as challenges to the banks. While the use of AI and digital banking platforms can elevate user experience and promote efficiency, banks must remain vigilant of cybersecurity threats. Thus, protecting financial data is critical, and strong cybersecurity measures are being put in place to ensure trust and smooth functioning of the industry.

Based on the Financial Sector Development Program, Riyadh’s ambitious plan is to be at the forefront as a global fintech hub, with the number of fintech companies in operation expected to reach 525 by 2030, generating nearly 18,000 job opportunities.

Presently, all GCC countries are at a distinctive stage in their journey towards sustainable finance, yet united in reaching individual national visions which prioritize sustainability. As a nation, Saudi Arabia is at the forefront in this journey within the GCC, driven by its ambitious Vision 2030 program. To facilitate this, the Saudi Arabian Monetary Authority has initiated green banking frameworks, and the Tadawul stock exchange includes green disclosure guidelines to encourage green financing and investments in renewable energy projects.

Market Conditions in the Kingdom

According to GASTAT, the Kingdom’s real GDP increased by 4.5 per cent, to X 3,671 billion in 2025 from X 3,513 billion in 2024. According to the Ministry of Finance, the Government is projected to record a budget deficit of X 276.61 billion and revenues of X 1,184 billion in 2025. Actual expenditure is estimated to have increased by approximately 1 per cent. from X 1,375 billion in 2024 to X 1,390 billion in 2025. Preliminary estimates for 2026 indicate that real GDP is expected to continue growing, supported by non-oil sector expansion, while government revenues and expenditure are projected to remain broadly stable, with a moderate fiscal deficit in line with ongoing strategic spending priorities

Saudi Arabia GDP Growth to Reach 3.1% in 2026

Source: IMF World Economic Outlook – April 2026