The Kingdom’s top 10 banks turned in solid results in 1Q 2024: Local lenders’ combined operating income grew 3.8% q-o-q to SAR 34.1 bn in the first quarter of this year, mainly on the back of 23% q-o-q growth in fee and non-core income, according to a quarterly report by global consulting firm Alvarez & Marsal’s (A&M) Saudi Arabia Banking Pulse (pdf). The increase was supported by higher cost efficiency and a decline in operating expenses, as the cost-to-income ratio fell 1.4% q-o-q. On an annual basis, combined operating income was up 4.9% y-o-y.

The methodology: A&M’s Banking Pulse analyzes data from the 10 largest listed banks in Saudi and compares their financial performance on a quarterly basis. It looks at their size, liquidity, income, operating efficiency, risk, and capital. The banks include Saudi National Bank (SNB), Al Rajhi Bank, and Riyad Bank, among others.

By the numbers: Total deposits grew 5.9% q-o-q mainly driven by an 8.2% hike in current account savings accounts. Overall, loans and advances grew by 3.5% q-o-q, a faster increase compared to 4Q 2023.

Meanwhile, net interest margins (NIM) fell 6 basis points q-o-q to just under 3%. Out of the 10 surveyed banks, seven reported a downtick in NIM — local banks’ main driver of growth in FY 2023. Yield on credit lost 7 basis points q-o-q while cost of funds remained essentially unchanged.

The outlook: “While SAMA continues to follow US Fed with respect to the benchmark interest rates, we expect higher interest rates will constrain mortgage lending growth in FY 2024. A downward rate adjustment is being predicted in the second half though both the timing and the size of the cuts have gone through many predictive revisions; nevertheless, lower rates are likely to gradually affect margins; banks will need to increase their focus on fee and transactional banking income. We also can expect a continued focus on costs throughout 2024, Asad Ahmed, Managing Director and head of ME financial services at A&M said in a press release.

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