Saudi Banks’ Net Profit Grew 18% Y-o-Y in H1

Led by strong performances from retail banks such as Al Rajhi and Saudi National Bank (SNB), Saudi Arabia’s banking sector’s net profits grew by a solid 18% y-o-y and were 3% above consensus, according to a latest research by Alrajhi Capital.

On the other hand, the aggregate net income of the Kingdom’s top 10 listed banks grew 6.3% q-o-q in 1Q 2025 to $5.92 billion, supported by higher fee income and cost efficiency, global consulting firm Alvarez & Marsal’s said in its Saudi Arabia Banking Pulse 1Q report last month. Net loans and advances for Saudi banks also grew by 5.4% q-o-q in 1Q, supported by an increase in corporate loans and deposits, the report said.

Retail banks such as Al Rajhi, SNB and Albilad posted a beat of estimated 4% and corporate banks like Bank Al Jazira and Banque Saudi Fransi (BSF) exceeded a forecast of estimated 3%.

Loan growth was 16% y-o-y, outpacing deposits and pushing Loan to Deposit Ratio (LDR) to 106%, with Riyad Bank, SAB, Alinma and Al Rajhi driving the loan growth. However, Net Income Margins (NIMs) declined sequentially due to tighter liquidity conditions and competition in the corporate space, the report said.

Despite low oil prices, asset quality remained intact, with retail banks especially SNB witnessing recoveries. Another positive was the strong surge in the non-interest income, that grew by 26% y-o-y, led by higher fees, commissions, trading and FX gains.

According to Alrajhi Capital, 2025 guidance was mixed with most banks (6 out of 9 that conducted calls) downgraded their NIM guidance, citing tighter liquidity conditions, lesser rate cuts than anticipated and higher competition in the corporate lending space.

On the positive side, despite the weaker oil prices, most of the banks reiterated their loan growth guidance (except BSF) and also maintained their cost of risk guidance. Most of the other targets were kept broadly unchanged.

Key Highlights from Earnings Calls

Most banks highlighted tight liquidity conditions and migration of CASA towards time deposits. Banks will continue to explore alternative sources of funding such as debt and most of them expect 1-2 rate cuts at the end of the year.

Most of the banks expect solid demand, but cited high competition on pricing in the corporate space. Strong demand from project finance, SMEs and mid-corporates, while recent slowdown in mortgage was attributed to the regulatory changes. Most banks expect to be selective and prioritise profitability over loan growth and also expect seasonal slowdown in Q3 and repayments (from corporates) in Q4 to weigh on loan growth in H2.

Despite low oil prices, most of the Saudi banks saw non-performing assets (NPAs) under control and saw solid recoveries in the first six months of this year.

Fee Related

Despite a change in regulations on credit card fees, most banks expect the impact to be immaterial as the anticipated reduction in fees is expected to be offset by an acceleration in volumes and transactions. Moreover, some banks amended their reward policies (points on spending) to offset the impact.

The banks also said that they have ample headroom to absorb SAMA’s 1% counter-cyclical capital buffer effective from 2026.