Saudi Arabia’s top 10 listed banks saw their earnings surge in the first quarter (Q1) of 2024 by 8 percent to reach SAR18.65 billion ($4.97 billion), compared to the same period the previous year. This increase can be attributed to several factors, including an 11 percent growth in lending and a rising interest rate environment that has heightened the cost of credit.
According to data from the Saudi Central Bank, loans reached SAR2.67 trillion ($711.9 million) by the end of March, with a growth rate surpassing that of deposits, which increased by 8 percent.
Moreover, research by Kamco Invest indicated that credit facilities across the Gulf Cooperation Council (GCC) countries continued to expand during Q1 2024, despite higher interest rates. This growth was driven by widespread increases across all seven countries, highlighting the resilience of the financial sector.
Robust lending reflects economic growth
The robust expansion in lending reflects a broader trend of economic growth and investment within the Gulf region, demonstrating the strength and stability of its financial systems. Lending growth was strong compared to last year, with each GCC country experiencing significant increases. This reflects a solid project pipeline, as aggregate contract awards in the GCC rose by 20.3 percent year-on-year, reaching $45 billion in Q1 2024.
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Positive outlook for Saudi banks
Additionally, S&P Global forecasts robust credit growth for banks in the Kingdom, ranging between 8-9 percent in 2024. This expansion is expected to be driven by corporate lending, fueled by increased economic activities stemming from the Vision 2030 program. In March, Moody’s Investors Service reaffirmed a positive outlook for Saudi Arabia’s banking sector, citing the Kingdom’s economic diversification programs and the growth of loans for low-risk government-backed projects. These initiatives are expected to enhance loan performance and contribute to robust profits in the banking sector.
Strong capital ratios, loan performance
Moody’s also emphasized that Saudi Arabian banks anticipate a low nonperforming loan ratio and possess substantial loss-absorption capacity, with their capital ratios ranking among the highest in the Middle East region. Furthermore, there is anticipation that the Saudi government and its affiliated entities will inject deposits into the banking system, thus providing additional support for the credit expansion of financial institutions in the Kingdom.
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