RIYADH: Saudi Arabia’s banking system has been upgraded from stable to positive, by Moody’s Investors Service thanks to robust oil prices, an ambitious reform agenda, and an upswing in economic growth. The bond credit rating subsidiary of Moody’s Corp. also highlighted the Kingdom’s business confidence and government spending as other driving factors for the upgrade. According to the report, the non-hydrocarbon sectors of the economy, where Saudi banks primarily operate, are experiencing sustained growth buoyed by this economic momentum. Increased expenditure is expected to drive non-oil gross domestic product growth to an estimated 4.7 percent in 2023. “Demand for credit is high and loan performance is improving, and this is likely to translate into robust profits for banks,” the report stated. The agency added that vital funds would persist, courtesy of sound internal capital generation and flexible dividend payouts. Moody’s believes that Saudi banks will face hurdles with higher interest rates enticing depositors to switch to more costly term deposits, thereby tightening interest margins. Another risk stems from their reliance on large single depositors, like the government and public entities, Moody’s added. Lending to the private sector is also expected to grow by 10 percent this year, indicating a positive trajectory in the segment. Furthermore, growth in residential mortgages is predicted to continue, bolstered by a government initiative to increase home ownership and an optimistic employment outlook. Saudi Arabia’s overall non-oil business activities improved in April, as strong domestic demand triggered an increase in new orders at the fastest rate since September 2014, another economy tracker revealed in May. The latest Riyad Bank Saudi Arabia Purchasing Managers’ Index report, formerly the S&P Global Saudi Arabia PMI, revealed that the Kingdom’s PMI went up to 59.6 in April from 58.7 in March. According to the index, PMI readings above 50 show non-oil private sector growth, while those below signal contraction.