Net income at banks in Saudi Arabia improved to SAR21.5 billion ($5.73 billion) in the fourth quarter of 2o24, compared to SAR20 billion in the third quarter, as interest rate cuts helped boost net interest margins, said Fitch Ratings in its latest report. Lending growth also remained strong and Fitch expects the Kingdom to continue outpacing other Gulf nations this year.
The report estimates that the average net interest margins for Saudi banks rose to 3.2 percent in Q4 of 2024 as the cost of funding declined by 12 basis points after the central bank cut interest rates by 50 basis points last quarter. The average earning assets yield remained stable at 6.3 percent.
Net profit of Saudi banks rises SAR80 billion in 2024
Saudi banks with higher levels of retail financing benefitted most, reflected by the net interest margins of Al Rajhi Bank and Bank Aljazira improving by 20 basis points quarter-on-quarter to 3.4 percent and 2.3 percent, respectively. Meanwhile, Saudi National Bank’s (SNB) net interest margin was 3 percent in Q4 of 2024, up from 2.7 percent in the third quarter.
The total net profit of Saudi banks rose to SAR80 billion in 2024 from SAR70 billion in 2023, with the sector average return on equity improving to 15 percent. The rise in earnings was driven by fast growth and a lower cost of risk, both underpinned by the healthy operating environment.
Lending grows to SAR87 billion
In Q4, lending also grew, expanding 3.1 percent to SAR87 billion. Al Rajhi Bank had the strongest growth of SAR44 billion or 6.7 percent, with equal contributions from its retail and corporate segments. Annual growth of gross financing at Saudi banks averaged 14 percent in 2024, up from 11 percent in 2023, with three banks reporting considerably higher levels: Saudi Awwal Bank at 20 percent, The Saudi Investment Bank at 22 percent, and Bank Aljazira at 19 percent.
“We expect Saudi banks to continue growing faster than their peers from other Gulf countries in 2025, forecasting sector financing to increase by 12 percent. Further interest rate cuts and stronger liquidity conditions should underpin banks’ growth appetite,” added Fitch.
Deposits dip by SAR35 billion
“The customer deposits balance of Saudi banks reduced by SAR35 billion in 4Q24, marking the first quarter since 2019 when deposits declined. However, this has a seasonal component, and we expect a stronger performance in 1Q25, as occurred in 1Q23 and 1Q24,” added Fitch.
Deposits grew by SAR40 billion in January 2025, according to the Saudi Central Bank.
SNB had the largest outflow of customer deposits, with its balance dropping by SAR54 billion. This included a SAR30 billion decrease in current and savings deposits, although these remain a still-high 72 percent of total deposits. SNB mitigated the outflow with repo facilities and money market deposits, and its Fitch-calculated loans-to-deposit ratio grew to 115 percent at the end of 2024.
Meanwhile, Saudi banks’ external liabilities remained stable at around SAR0.4 trillion at the end of Q4. However, net foreign assets fluctuated around 0.5 percent of total sector assets.
“We expect Saudi banks to gradually increase their reliance on external funding, especially if corporate borrowers continue to demand foreign-currency financing, but net foreign assets will remain below 2 percent in 2025,” added the report.
