Saudi Banking Sector Post Strong Performance in Q2

The Saudi banking sector posted strong quarterly performance in the second quarter, with net profits rising 18% y-o-y and 3% above consensus expectations in Q2 2025, Kuwait-based Kamco research said.

Retail banks (Al Rajhi, SNB, Albilad) reported earnings approximately 4% above expectations, while corporate banks came in about 3% higher than forecasts.

According to the research, the aggregate loan growth remained strong at 16% y-o-y, outpacing deposit growth and pushing the system-wide loan-to-deposit ratio (LDR) to 106%. The main contributors to this expansion were Riyad Bank, SAB, Alinma, and Al Rajhi.

On the other hand, corporate loan growth was at 12.3% year-to-date (total loans less loans to individuals). However, net interest margins (NIMs) contracted sequentially, reflecting tighter liquidity conditions and intensified competition in the corporate segment.

Despite softer oil prices, asset quality held firm, with some banks, particularly Saudi National Bank (SNB), even reporting recoveries. Another notable positive was the strong momentum in non-interest income, which rose 26% y-o-y, supported by higher fees, commissions, trading income, and FX gains. Industry’s cost-to-income ratio stood at 38.6% in Q2 of 25 vs 39.8% in Q2 of 24.

Corporate real estate loans showed a subdued q-o-q growth of 0.3% to reach $58.92 billion in Q2 of 2025 as against $58.79 billion for the corresponding period in last year, while retail came in at $89.83 billion (Q1 2025: $186.10 billion) showing a growth of 2%.

The retail mortgage segment remained under pressure with new residential mortgage originations contracting by 32% in Q2 2025 to $5.07 billion. This weakness was evident in bank-level disclosures, with SNB reporting a decrease of 2.5% in its mortgage book, Riyad Bank reported flat mortgage growth, and Al Rajhi with a 1.1% increase on a q-o-q basis.

“That said, we expect a turnaround in mortgage demand by Q4 2025, supported by a likely rate cut in September, REDF support programs, government housing initiatives, and seasonal promotions by banks and developers,” Kanco said.

The recent amendment to the White Land Tax Law, which introduced a 5%–10% tax on vacant plots in the Kingdom to push landowners to develop, sell, or lease properties, should increase supply and, in turn, support mortgage growth in line with new developments.

Expats Can Buy Homes
Starting January 2026, expatriates will be allowed to buy homes in Saudi Arabia, with conditional ownership in Makkah and Madinah. Saudi Arabia has also launched its first residential mortgage-backed securities through SRC to boost bank liquidity and lending.

In the meanwhile, management focus has shifted towards cost optimisation, aiming to protect and gradually improve NIMs. Asset quality, on the other hand, remained robust despite low oil prices and most banks saw solid recoveries.

Time & Savings deposits have grown 15.7% YTD, compared with 3.7% growth in demand deposits, intensifying competition for CASA accounts and prompting some banks, notably SNB, to offer cost-bearing CASA products.

With funding costs elevated, banks have increasingly relied on costlier interbank deposits, additional Tier 1 capital, and other debt instruments, with major players such as Riyad Bank, SNB, and Al Rajhi reporting Tier 1 capital growth in the low-to-mid teens YTD, the research said.