RIYADH: Saudi banks saw deposits grow faster than lending in the second quarter of 2026, helping strengthen liquidity as profitability improved and asset quality remained broadly stable, an analysis showed.
Deposits at the 10 largest listed Saudi banks rose 2.7 percent from the previous three-month period, compared with a 1.8 percent increase in net loans and advances, Alvarez & Marsal said in its latest KSA Banking Pulse report.
The faster deposit growth pushed the sector’s loan-to-deposit ratio down by 1 percentage point to 103.1 percent.
Aggregate operating income rose 5.1 percent to SR42.5 billion ($11.3 billion), driven largely by a 38.5 percent surge in other operating income. Net interest income and net fee and commission income each rose 2.1 percent.
This growth comes as Saudi banks demonstrated resilience amid a complex global interest-rate environment marked by ongoing conflicts in the Middle East, elevated energy prices and divergent monetary policies.
Sam Gidoomal, managing director and head of Middle East Financial Services at A&M, said: “Saudi banks combined accelerating balance-sheet growth, improving cost efficiency, stable margins and robust capital and liquidity buffers, but performance was multi-directional, with margins, returns and efficiency diverging between the scale players and the smaller peers.”
Commenting on the report, Tony Hallside, CEO of STP Partners, told Arab News that the growth of Saudi banks is supported by a “combination of prudent regulation, disciplined balance-sheet management and sustained domestic investment puts the sector in a strong position to navigate external volatility.”
Efficiency improves
According to the report, the cost-to-income ratio among Saudi banks improved to 28.6 percent from 30.1 percent in the first quarter of the year, even as banks continued to invest in technology, infrastructure and strategic initiatives.
Net interest margin held broadly stable at 2.85 percent, while return on equity rose 28 basis points to 15 percent and return on assets increased 4 basis points to 2.1 percent.
The non-performing loan ratio remained at 0.9 percent and the coverage ratio edged up to 162.7 percent, while the cost of risk increased to 0.32 percent as banks recorded higher credit provisions.
Margins in focus
A&M said the trajectory for banks’ margins in the third quarter will depend on their ability to sustain and expand net interest margins as benchmark rates decline and funding costs progressively reprice.
Hallside said that geopolitical uncertainty will inevitably remain a consideration for banks and borrowers, particularly if it affects business confidence, energy markets or the cost of funding.
“However, we would not expect it on its own to materially derail lending growth in the near term. Domestic demand remains supported by Vision 2030-related investment and broader economic diversification,” he said, adding the more important question for the third quarter will be how banks balance credit demand with changing interest rates, funding conditions and a continued focus on asset quality.
The report covers the top 10 banks by asset size, which include Saudi National Bank, Alrajhi Bank, Riyad Bank, Saudi Awwal Bank, and Banque Saudi Fransi.
Other banks included in the analysis are Alinma Bank, Arab National Bank, Saudi Investment Bank, Bank Albilad, and Bank Aljazira.
