Saudi Arabia Banking Sector Shows Strong Start To 2025 With Improved Profitability

The Kingdom’s Banking Pulse, which analyses the performance of Saudi Arabia’s 10 largest listed banks, highlighted improved profitability metrics, with return on equity (ROE) increasing by 44 basis points to 15.3 per cent and return on assets (RoA) edging up to 2.1 per cent.

Saudi banking sector shows strong performance

Corporate lending momentum accelerated, with net loans and advances rising 5.4 per cent quarter-on-quarter, driven by a 7.5 per cemt surge in corporate loans, which now represent over 57 per cent of total gross loans.

“Saudi banks are entering a new strategic phase marked by stronger capital stewardship and a focus on unlocking liquidity through innovation – from potential mortgage securitisation to targeted portfolio rebalancing,” said Sam Gidoomal, Managing Director and Head of Middle East Financial Services at Alvarez & Marsal.

The report revealed that deposit growth rebounded to 4.0 per cent after declining in the previous quarter, led by an 8.1 per cent rise in time deposits. This led to the loan-to-deposit ratio increasing to 106.1 per cent, the highest level in recent quarters.

Operating efficiency improved significantly, with the cost-to-income ratio declining by 149 basis points to 29.8 per cent, as banks controlled expenses while growing operating income by 3.2 per cent.

Non-interest income surged by 9.6 per cent quarter-on-quarter, primarily driven by growth in trade finance, foreign exchange, and investment gains, offsetting pressure on interest margins following recent policy rate cuts.

According to Asad Ahmed, A&M Managing Director, while margin pressures “persist amid interest rate normalisation, the decline in impairments and growth in fee-based income indicate that banks are diversifying their revenue streams and adapting effectively to the evolving environment.”

Asset quality improved marginally with the NPL ratio declining to 1.03 per cent, though coverage ratios fell to 154.8 per cent as banks reduced impairment allowances by 15.8 per cent.

According to the report, the Kingdom’s economy is expected to grow by 3.6 per cent year-on-year in 2025, with non-oil activities contributing significantly more at 4.3 per cent compared to 3 per cent from oil activities, reflecting ongoing progress in the Kingdom’s economic diversification under Vision 2030.

The banking sector analysis included Saudi National Bank, Al Rajhi Bank, Riyad Bank, Saudi British Bank, Banque Saudi Fransi, Arab National Bank, Alinma Bank, Bank Albilad, Saudi Investment Bank, and Bank Aljazira, which collectively represent the largest financial institutions in the Saudi market.