Boosted by corporate lending and non-interest income, Saudi Banks are navigating high-interest rates and Vision 2030 opportunities for sustainable growth

Saudi Arabia’s banking sector experienced robust growth in the third quarter of 2024, with loans and advances rising by 3.7% sequentially, according to a report by Alvarez & Marsal. Saudi Banks Loan Growth highlights the sector’s strength, driven by a 4.4% surge in corporate and wholesale banking, reflecting the Kingdom’s expanding economic activities under Vision 2030.

Despite the strong credit demand, deposit growth lagged, rising only 1.4% during the same period. Asad Ahmed, Managing Director of A&M Financial Services, highlighted that Saudi banks’ profitability improved due to a rise in non-interest income, despite moderate increases in impairment charges. “Banks are focusing on operational efficiency, and with potential rate cuts looming, non-interest income will be crucial to maintaining margins,” Ahmed noted.

Time deposits increased by 4.2%, underscoring the impact of a high-interest rate environment. The loan-to-deposit ratio surpassed 100%, indicating that the appetite for credit outstripped deposit mobilisation. Operating income rose by 6.0%, driven by a significant 15.2% increase in non-interest revenue, leading to an improved cost-to-income ratio, which fell to 31.0%.

Net income also grew by 5.3%, reaching SAR 20.5 billion, despite a notable 30.4% rise in impairment charges. The Saudi Central Bank aligned with the US Federal Reserve, reducing repo rates by 50 basis points, yet net interest margins held steady at 2.95%, supported by an 8.6% yield on credit.

Saudi banks are also prioritising digital transformation to enhance their offerings. For example, Al Rajhi Bank’s recent acquisition of a controlling stake in “Drahim,” a financial management platform, reflects the sector’s growing integration with fintech.

Vision 2030 continues to play a pivotal role in non-oil economic diversification, driving increased consumer spending, tourism, and construction. These factors have bolstered the banking sector’s resilience despite geopolitical uncertainties and fluctuations in the global oil market.

As Saudi banks focus on enhancing non-interest income streams and cost efficiency, the sector remains well-positioned for long-term sustainable growth. Saudi Banks Loan Growth reflects the positive impact of these strategies, supporting their ability to drive economic progress. The report underscores that the banks’ proactive strategies align with broader economic goals, ensuring they continue to play a critical role in advancing the Kingdom’s transformation agenda.