Saudi Arabia’s banking system faces increasing risks from a slowdown in the economy, although the outlook for the sector is stable, according to a report by ratings agency Moody’s Investors Service.

The high concentration of exposure to family-owned businesses with poor corporate governance and a lack of transparency are a particular concern. Moody’s adds that these risks are mitigated in part by the strong financial position of Saudi banks, enabling them to absorb losses.

Moody’s also identified potential problems arising from a mismatch between banks’ assets and liabilities. This stems from the lack of long-term funding sources. This, and a reliance on government deposits, means banks need to find ways to broaden their funding sources and lengthen their maturity.

Moody’s says local banks benefit from the government’s expansionary budget, and swift measures by the Saudi Arabian Monetary Agency (Sama) to ensure liquidity levels remain high. In 2008, the government offered SR34bn ($9bn) in deposits followed by SR57bn in the first six months of 2009, according to the report.