Saudi Arabia’s banking sector delivered a strong performance during the third quarter of 2024, with loans and advances up 3.7%. The bulk of this was fueled by 4.4% growth in corporate and wholesale banking, Alvarez & Marsal said. Credit demand surpassed deposit mobilization during this period as deposits grew by just 1.4%.

According to Asad Ahmed, the managing director of A&M Financial Services, the positive trends witnessed in Q3 speak of growth built on improved cost efficiency. The bottom line became profitable with an increase on non-interest income while impairments grew moderately. He noted that the Saudi banks are in a prime position to sustain growth by working on building non-interest revenue and cost efficiencies, as the Central Bank of Saudi Arabia is aligning interest rates with those from the US Federal Reserve anyway. As interest rate cuts will hit interest margins even harder, then it is really all about the non-interest revenue.

Time deposits increased by 4.2%, reflective of a high-interest rate environment; the loan-to-deposit ratio remained over 100%, showing that credit demand continues to be healthy. Operating income grew by 6.0%, reflecting a significant 15.2% jump in non-interest income; cost-to-income ratio therefore improved, down 31 basis points at 31.0%. Net income was up 5.3%, to SR20.5 billion, even though impairment charges rose 30.4%.

In addition, while the Saudi Central Bank lowered repo rates by 50 basis points, the net interest margins remained at 2.95%, a situation supported by an 18-basis-point increase in credit yield to 8.6% and a slight increase in the cost of funds to 3.5%.

Saudi Arabia’s Vision 2030 continues to benefit the banking sector with growth in non-oil sectors such as consumer spending, tourism, and construction. Digital transformation also stands out, with a notable example being Al Rajhi Bank securing a majority stake in fintech firm Drahim. The Saudi banking sector is not exempt from geopolitical risks and fluctuations in the oil market; it is, however, resilient and integral to the economic development of the Kingdom.