Credit Rating in the Saudi Financial Market: Complete Explanation and Recent

Credit rating, or credit assessment, is an independent estimate of the financial credit risk of an entity—whether a country, company, or financial institution. This rating is issued by global credit rating agencies (such as Fitch, Moody’s, and Standard & Poor’s) and sometimes by local agencies. The rating aims to indicate the likelihood of the entity repaying its obligations on time and is usually expressed on a symbolic scale from AAA (highest grade) to D (default).

In the Saudi financial market, credit rating plays a pivotal role in facilitating financing operations and attracting foreign investment, especially with the increasing issuance of bonds and sukuk. The rating helps investors understand the level of risk associated with loans or debt instruments and gives companies and the government greater flexibility in obtaining lower-cost financing if the rating is high. Saudi regulators sometimes require a credit rating for debt issuances to enhance transparency and market confidence.

Credit rating agencies evaluate creditworthiness based on in-depth analysis of financial data, capital structure, liquidity, debt ratios, sector performance, and macroeconomic factors. The most well-known agencies are Moody’s, Standard & Poor’s (S&P), and Fitch. Some countries also have local agencies, but the Saudi market mostly relies on international ratings to increase the appeal of issuances to foreign investors.

Agencies use both quantitative and qualitative modeling tools, issuing a report that includes the rating grade and an outlook (stable, positive, or negative). High ratings (from AAA to A) reflect low risk, while lower ratings (BB and below) indicate higher credit risk. Agencies have full independence in their decisions and update ratings periodically in response to financial or economic developments.

Credit ratings are divided into three main types:

1. Sovereign Rating: Relates to governments and reflects their ability to repay sovereign debts and treasury bonds. For example, Saudi Arabia maintains an "A" or "A1" rating with a stable outlook according to the latest Moody’s and Fitch reports.

2. Corporate Rating: Pertains to companies or banks and depends on their financial strength, profitability, debt structure, and state support. Examples in the Saudi market include Saudi Aramco (A/A1 rating), Saudi National Bank (A+), and Al Rajhi Bank (A).

3. Sectoral Rating: Focuses on assessing an entire economic sector, such as oil or banking, based on its risks, volatility, and impact on the individual ratings of companies operating within it.

These types are often interrelated, as the sovereign rating directly affects the ratings of national companies and banks, strengthening or weakening overall investor confidence in the market.

Rating agencies use letter symbols to represent rating grades:

- AAA/Aaa: Highest credit safety.
- AA/Aa: Very high safety with low risk.
- A: Good safety with some long-term risk.
- BBB/Baa: Lowest investment grade; still reliable but more exposed to adverse economic conditions.
- BB/Ba and below: High risk (High Yield), usually requiring higher returns to attract investors.
- D: Default.

In Saudi Arabia, most government and large corporate issuances fall within the A to BBB range, supporting market attractiveness and reducing financing costs. The rating reflects not only current repayment ability but also anticipates future risks and the speed of economic or geopolitical changes.

Credit ratings are affected by several key factors, including:

- Financial performance: Revenue growth, profitability, debt-to-capital ratio.
- Liquidity: Amount of available cash and access to financing.
- Economic sector: Stable sectors (such as oil and telecom in Saudi Arabia) provide higher safety.
- Government support: Direct state support enhances ratings.
- Legislative and political environment: Political stability and regulatory reforms support creditworthiness.
- Global market volatility: Especially oil prices, interest rates, and geopolitical events.

Rating agencies monitor these indicators regularly, and any significant changes (such as a sudden increase in debt or a decline in profits) may result in an upward or downward rating adjustment.

In recent years, the Saudi financial market has seen significant growth in the volume of credit issuances and the number of companies obtaining international ratings. The Kingdom maintained a stable sovereign rating (A/A1) with the public debt-to-GDP ratio declining from 47% to around 35% by the end of 2024. The number of listed companies with credit ratings rose to over 20, including banks, energy companies, and major industries. The value of local bonds and sukuk reached about SAR 500 billion by the end of 2025, reflecting investor confidence in the Saudi market.

On the other hand, yields on 10-year Saudi government bonds fell to 4.5%, indicating improved creditworthiness and economic stability despite global volatility. All these developments highlight the importance of credit rating as a key tool for risk management and enhancing the appeal of the Saudi market.

The relationship between credit rating and financing cost is direct and clear. The higher the rating, the lower the borrowing cost for companies and the state, as investors view highly rated debt as lower risk and thus accept lower returns. Conversely, the lower the rating, the higher the risk of default, and the higher the required yield.

In Saudi Arabia, major companies like Aramco and leading banks benefit from strong ratings, enabling them to issue bonds at competitive interest rates and attract a wide range of investors. Regulators also sometimes require issuers of bonds and sukuk to have a credit rating, which enhances transparency and raises financial governance standards in the market.

Saudi Aramco (Tadawul symbol: 2222) is a prominent example of high creditworthiness both locally and globally. In 2024, Aramco received an A- rating from Standard & Poor’s, A1 from Moody’s, and A from Fitch, all with a stable outlook. This rating reflects strong government support, exceptional financial performance, and the company’s risk management flexibility.

Aramco’s share price rose to SAR 35 in 2024, with a market capitalization of $2.1 trillion, a price-to-earnings ratio of 6.5, and substantial annual dividends (dividend yield of 3-4%). Thanks to these indicators, Aramco can issue international bonds at relatively low cost and competes with major global oil companies in terms of creditworthiness. Its high rating also positively influences investor perceptions of the Kingdom as a whole and gives it greater flexibility in debt markets.

Different economic sectors play a pivotal role in determining the credit rating of companies operating within them:

- Oil sector: Characterized by large profits and significant cash reserves, as seen with Aramco. However, global oil price volatility remains a constant risk.
- Banking sector: Major Saudi banks (such as Saudi National Bank and Al Rajhi) enjoy high ratings due to strong capital and lending growth, though they are still monitored for default rates.
- Telecom sector: Companies like STC benefit from stable cash flows and relatively low credit risk.

Each sector has specific determinants affecting the rating, such as state support, income diversification, and financial sustainability strategies.

Investors use credit ratings as a fundamental tool to assess the risk of investing in bonds or debt instruments. Major investment entities (such as pension funds and international banks) typically only invest in investment-grade debt instruments (BBB/Baa and above).

For financial institutions, a high rating enables access to cheaper financing, opens global debt markets, and enhances their ability to compete locally and internationally. The rating is also used in pricing financial products, setting risk limits, and monitoring regulatory compliance, making it a cornerstone of institutional risk management.

Between 2023 and 2025, the Kingdom’s sovereign ratings remained at high levels, with international agencies commending fiscal discipline and improvements in non-oil revenues. The market saw an expansion in government and private bond issuances, with some offerings oversubscribed by more than six times.

On the corporate front, Aramco continued to update its dividend policy, boosting its credit rating, while Saudi banks achieved annual profit growth exceeding 15%. The Kingdom also entered into strategic financial alliances with international institutions to improve borrowing flexibility and safeguard monetary stability, which positively impacted national and major corporate ratings.

Saudi entities’ credit ratings are indirectly affected by global market fluctuations, especially oil prices, global interest rates, and geopolitical events. For example, the oil price collapse in 2020 put pressure on the sovereign rating, but it improved again as prices stabilized and economic diversification increased.

Rating agencies monitor the Kingdom’s ability to handle crises and the effectiveness of spending controls and non-oil revenue growth. Large cash reserves and the Public Investment Fund provide additional support for financial stability, limiting the negative impact of global events on credit ratings.

There are several strategies that enable governments and companies to improve their credit ratings:

- Reducing debt-to-GDP or debt-to-earnings ratios.
- Diversifying revenue sources to reduce reliance on a single sector (such as oil).
- Enhancing transparency and financial governance, and adopting international reporting standards.
- Improving liquidity and cash reserves.
- Controlling government spending and achieving sustainable fiscal balance.

For companies, increasing capital, improving operational efficiency, and effective risk management all enhance creditworthiness and support future rating upgrades.

A downgrade in the credit rating of any country or company can lead to higher financing costs, reduced investor confidence, and lower prices for existing bonds. Entities with downgraded ratings may find it more difficult to obtain new financing or refinance existing debt on favorable terms.

In the Saudi market, risks remain limited due to government support and abundant reserves, but a rating downgrade could affect the market’s appeal to international investors and increase the economy’s sensitivity to global shocks. Therefore, regulators and major companies closely monitor all factors affecting ratings and strive for continuous improvement.