operating context

Global operating environment

During 2025, the global economy demonstrated stronger-than-expected resilience, with global GDP growth holding steady at 3.3% according to the International Monetary Fund (IMF). This performance was supported by sustained momentum in the United States at 2.1%, and robust expansion across emerging markets and developing economies, led by China’s 5.0% and India’s 7.3% growth. These performances collectively offset more moderate performances in advanced markets such as the Euro Area which remained modest at 1.4%.

Inflationary pressures continued to ease over the course of 2025 as the cumulative impact of earlier monetary tightening took effect. Global headline inflation declined steadily, allowing major central banks to maintain a cautious and data-dependent monetary policy stance. Financial conditions gradually normalised, although interest rates remained elevated relative to pre-pandemic levels. Global trade expanded modestly during the year, broadly in line with economic growth, despite ongoing fragmentation risks arising from geopolitical tensions, trade policy uncertainty, and the reconfiguration of supply chains. Elevated sovereign debt levels, particularly across emerging and developing economies, continued to constrain fiscal flexibility and public investment, reinforcing the role of private capital and financial institutions in mobilising long-term financing.

Climate change and sustainability considerations remained central to the global agenda throughout 2025. The International Energy Agency reported continued growth in global clean-energy investment, which exceeded USD 2 Tn. annually, reflecting accelerating commitments toward energy transition and decarbonisation. In 2025, global banking regulators, including the oversight body of the Basel Committee on Banking Supervision, reached a consensus to treat climate-related financial risk as a systemic issue, emphasising that banks must integrate both physical and transition climate risks into their core supervision and risk management frameworks and not to simply address them as optional sustainability initiatives. This reflects the growing recognition of climate risk’s potential impact on overall financial stability. At the same time, regulatory expectations around ESG disclosures, climate risk and sustainable finance deepened across global financial systems.

Rapid technological advancement also shaped the global operating environment in 2025. The adoption of artificial intelligence, automation, and advanced analytics accelerated across industries, including financial services, enhancing productivity and customer engagement while heightening cyber-security, data-privacy, and governance risks.

Key global trends impacting financial institutions

Several structural trends continued to influence the global financial sector during 2025:

Collectively, these trends reflect a shift towards embedding ESG considerations within core banking strategies, governance frameworks, and risk-management practices, with sustainability increasingly viewed as crucial to long-term financial stability and value creation.

Regional operating environment

Economic conditions across the Gulf Cooperation Council (GCC) gained momentum in 2025, with growth projections revised upwards during the year, supported by improving oil market dynamics and sustained non-oil sector growth. According to the World Bank’s Gulf Economic Update, regional growth accelerated, driven by diversification initiatives, infrastructure investment, rapid digital innovation, and expanding private-sector activity.

Non-oil sectors including tourism, logistics, manufacturing and mining, as well as construction continued to expand across the region, reinforcing economic resilience. Islamic finance remained a core pillar of the regional financial system, with continued growth in Shariah-compliant financing and capital-market activity.

This financial evolution is increasingly driven by the institutionalisation of sustainable finance; recent projections indicate that strategic green investments are expected to contribute up to $2 Tn. to the cumulative GDP of GCC by 2030. This transition is expected to further diversify the regional economy while potentially creating more than one million high-skilled jobs in emerging green industries.

2025 recorded the highest annual ESG sukuk issuance, with Saudi Arabia and UAE issuers representing 68% of total ESG sukuk issuances at the end of Q3 in 2025. Most issuances were non-sovereign, and were supported by sovereign sustainability agendas and strong investor demand. A recent report by Fitch Ratings shows that both corporate and financial institutions were responsible for more than 40% each of ESG sukuk issuance in the first nine months of 2025, underscoring the expanding role that banks play in structuring and issuing ESG-labelled Islamic finance instruments. Fitch also observed a notable increase in subordinated ESG sukuk, with nearly USD 5 Bn. issued—entirely from Saudi banks, pointing to greater integration of ESG instruments into bank capital structures. While the strong momentum for ESG sukuk is expected to continue into 2026, Fitch cautioned about risks such as greenwashing, oil price fluctuations, and changes in Shariah compliance requirements.

Labour-market reforms and human-capital development initiatives progressed across GCC economies, contributing to higher workforce participation and supporting long-term economic transformation objectives.

Local operating environment – Kingdom of Saudi Arabia

Saudi Arabia’s economy recorded solid performance during 2025, driven by Vision 2030 reforms and sustained non-oil sector expansion. Real GDP growth improved compared to the previous year, supported by recovering oil production and strong domestic demand across non-oil sectors, and is expected to reach 4.5% in 2025.

Non-oil economic activity remained robust, driven by continued investment in tourism, entertainment, manufacturing, technology, and financial services. Overall, non-oil activity is estimated to contribute 57% to Saudi Arabia’s total GDP in 2025, a clear indication of the progress achieved under Vision 2030 to diversify the Kingdom’s economy and reducing reliance on hydrocarbons. Business sentiment remained positive throughout the year, reflected in consistently expansionary Purchasing Managers’ Index (PMI) readings.

The Kingdom continued to advance regulatory reforms aimed at strengthening transparency, governance, and investment attractiveness. Public Investment Fund (PIF)-led initiatives and giga-projects remained central to economic transformation, generating sustained financing and advisory opportunities for the banking sector. Increased emphasis on sustainable development and green investment aligned with national climate objectives.

In 2025, the Capital Market Authority introduced the Guidelines for Issuing Green, Social, Sustainability, and Sustainability-Linked Debt Instruments, effective from May 27. These Guidelines officially allow banks to issue ESG-labelled bonds and sukuk under a unified regulatory framework that aligns with international standards. Issuers are now required to clearly define how proceeds will be used or set specific sustainability-linked performance targets, obtain independent external reviews, and provide ongoing post-issuance reporting on fund allocation and ESG outcomes. These measures are designed to strengthen governance, reduce the risk of greenwashing, and boost investor confidence in Saudi Arabia’s sustainable finance market.

Digitalisation remained a defining feature of the local operating environment in 2025. The adoption of digital payments, fintech solutions, and e-commerce continued to accelerate, supporting financial inclusion, operational efficiency, and the transition toward a less cash-dependent economy.

In early 2025, Fitch Ratings affirmed the Kingdom’s sovereign credit rating at ‘A+’ with a Stable Outlook, reflecting strong fiscal and external balance sheets supported by large sovereign assets relative to GDP. S&P Global Ratings upgraded Saudi Arabia’s sovereign rating to ‘A+’ with a Stable Outlook, highlighting ongoing economic and social reforms under Vision 2030 and enhanced productivity across diversified sectors.

The Saudi banking sector

The Saudi banking sector operated in a favourable environment during 2025, supported by strong macroeconomic fundamentals, proactive regulation, ongoing economic transformation and robust credit growth. Saudi Arabia maintained one of the strongest banking operating environments in the region, reflecting robust institutional strength and regulatory oversight.

Total banking sector assets reached X 4.96 Tn. by the end of 2025, highlighting the accelerating expansion of the Kingdom’s financial sector. Total bank credit in the Kingdom increased to X 3.30 Tn. by the end of the year, driven by strong demand for corporate financing linked to infrastructure, development and Vision 2030 projects. Bank deposits and liquidity remained prudent, and capital buffers continued to remain well above regulatory standards. Credit growth outpaced deposit growth, with the sector supporting broad economic activity including real estate, trade, manufacturing and utilities.

The Saudi Central Bank (SAMA) maintained a central role in safeguarding financial stability, while the Financial Sector Development Programme continued to enhance competitiveness, resilience and sustainability of the banking system.

Saudi Arabia’s fintech ecosystem continued its rapid evolution in 2025, with intensified collaboration between banks and fintech firms against a progressively enabling regulatory backdrop. Fintech activity in the Kingdom has scaled significantly, with over 280 active fintech firms operating by late 2025, supported by SAMA and the Capital Market Authority (CMA). Banks and start-ups jointly advanced services across digital payments, embedded finance, BNPL, peer-to-peer lending, and API-driven platforms, fostering innovation that drives financial inclusion and diversification. SAMA’s regulatory sandbox and CMA’s Fintech Lab have together enabled 68 experimental fintech permits, of which 36 have commenced operations at the close of the year. Meanwhile, cashless transaction volumes remained elevated, reflecting the continued shift toward digital payments, and the growing adoption of digital channels by customers. These developments demonstrate strong ecosystem momentum anchored in Vision 2030 objectives, to accelerate digital transformation and expand fintech-enabled financial services.