The ratings agency noted that the deterioration in asset quality and profitability in the kingdom’s banking sector has been contained, with the banks’ financial metrics stabilising.

Various government support measures including interest-free deposits, as well as strong loan growth in 2020 and first six months of the year and sustained momentum in retail mortgages helped banks.

Fitch said pressures on banks are easing because global oil demand has recovered and non-oil economic activity has improved.

“The impact of the pandemic on Saudi Arabian banks has been contained, while pressures on the operating environment have eased and the economic activity is gradually recovering, supported by higher oil prices,” Fitch said.

With the reduced pressures on the operating environment, Fitch has revised the outlooks on all Saudi banks’ long-term issuer default ratings to stable in the second and third quarters of the year. It said Saudi banks’ weighted average viability rating of “bbb+” remains the highest in the Gulf Cooperation Council.

However, Fitch said that delayed recognition of impairments remains a key risk. “But we believe the impact on the sector’s asset quality and overall financial profiles will be contained.”

The Saudi Central Bank (SAMA) said last year that it injected $13.3 billion into the banking sector to boost liquidity.

Loan growth in the country also strengthened in 2020 and first half of 2021, at 14.9 percent and 19 percent, respectively.

As of September 2020, retail mortgage lending was up 41 percent, fuelled by a high demand for home ownership.