Saudi banks' aggregate profit reaches $2.2bn: SAMA

03/03/2025 05:55 AST

Saudi banks posted strong financial results in January, with aggregate profits rising 16 percent year on year to SR8.14 billion ($2.17 billion), according to newly released data.

Figures from the Saudi Central Bank, also known as SAMA, representing pre-zakat and pre-tax earnings, highlight the sector's resilience and growing profitability.

The surge comes as total bank loans in Saudi Arabia exceeded SR3 trillion for the first time, marking a 14.66 percent annual increase - the fastest pace since October 2022.

A key driver of this growth has been increased business financing, particularly in real estate, manufacturing, and trade. As lending to these sectors expands, banks benefit from higher interest income, reinforcing their financial performance and their role in supporting economic diversification under Vision 2030.

Saudi banks closed 2024 with record-high cumulative profits of SR89.1 billion, with December marking the highest monthly earnings.

The sector has also benefited from government stimulus efforts aimed at supporting businesses, enhancing credit access, and driving infrastructure development. To sustain growth, Saudi banks have tapped into the bond market, securing additional capital for lending and investments, further strengthening their financial positions amid economic fluctuations.

Additionally, the sector has effectively adapted to shifting economic conditions, including fluctuating interest rates that have influenced lending practices and consumer behavior.

According to S&P Global, Saudi banks are set for continued profitability, driven by higher lending growth, a favorable economic environment, and lower interest rates.

The forecast suggests that non-performing loan formation will remain slow amid lower interest rates, with S&P Global projecting NPLs to rise to 1.7 percent of systemwide loans by the end of 2025, up from 1.3 percent in September 2024.

However, the increase in NPLs is expected to be gradual, with no significant write-offs anticipated in the near future.

S&P Global also sees credit growth as a key driver of bank profitability, with return on assets projected to stabilize between 2.1 and 2.2 percent, in line with the 2024 estimate.

This, along with a strong provisioning cushion, will help mitigate potential credit losses, which are expected to range between 0.50 and 0.60 percent of total loans over the next 12-24 months.

However, despite the benefits of increased lending, challenges remain. The net interest margin is projected to decline by 20-30 basis points by the end of 2025, primarily as SAMA aligns with US Federal Reserve rate cuts to maintain the currency peg.

Additionally, the repricing of largely floating corporate loans - accounting for 50 percent of total loans, according to S&P Global - is expected to lower interest income.

This impact will be partially offset by fixed-rate and long-term mortgages, which comprise 25 percent of the total loan portfolio.

In the broader picture, while lower interest rates may reduce funding costs, a sharp decline could shift consumer preferences toward demand deposits, potentially affecting overall bank funding.

Data from SAMA showed that demand deposits hit a record high of SR1.68 trillion in January, while time and savings accounts declined slightly from their November peak of SR989.99 billion to SR985.03 billion, as interest rates edged lower.

Despite these pressures, Saudi banks are expected to remain resilient, with a solid foundation for sustained profitability into 2025, according to the agency.

Arab News