Saudi banks registered 3.1% lending growth q-o-q in 2Q 2024, coming in second among its GCC peers behind the UAE, according to a Kamco Invest report (pdf). The growth was “backed by broad-based growth in almost all sectors in the economy,” Kamco said, with outstanding credit facilities registering SAR 2.7 tn (USD 711.1 bn) during the quarter.

Sector breakdown: Utilities — including electricity, water, gas, and health services) led the pack in terms of outstanding credit facilities, which grew 8.3% q-o-q in 2Q 2024, followed by real estate and building (+4.3% q-o-q) and construction (+4.0% q-o-q).

Total customer deposits at Saudi-listed banks fell 0.5% q-o-q during the quarter to SAR 2.8 tn (USD 746.9 bn). The fall was led primarily by Saudi National Bank (SNB), where customer deposits fell 3.6% on a quarterly basis to SAR 656.3 bn.

Emirati-listed banks also recorded a 16.9% return on equity (ROE), up from 16.7% in 1Q 2024, and posting a 160 bps y-o-y growth. Growth was driven by high net incomes and modest growth in shareholders’ equity.

Net interest margins came in at 3.2% in 2Q 2024, with net interest income at Saudi banks growing 2.5% q-o-q to USD 7.3 bn. “In terms of y-o-y growth at the GCC level, the growth in net interest income was strong at 7.6% reflecting elevated interest rates levels in the GCC, in line with most other global economies,” Kamco said.

Loan impairments were down: Saudi banks reported the second-lowest loan impairment rates among their GCC peers, with the banking sector’s total impairments sliding to USD 0.49 bn during the quarter, according to Kamco.

THE REGIONAL PICTURE-

GCC banks posted a record high of USD 14.8 bn in net income in 2Q 2024, rising 9.2% y-o-y and 2.6% q-o-q on the back of the sharp drop in loan impairments. GCC banks’ aggregate ROE climbed to 13.6% in 2Q 2024, matching pre-pandemic levels and reflecting a 70 bps y-o-y growth. Saudi and Qatari banks followed the UAE in ROE growth at 12.8%, while Kuwaiti banks’ ROE remained at 10.4%.

After dipping 4.5% in 1Q, the regional banking sector saw a rise in operating expenses to one of the highest on record, inching up 0.8% q-o-q to USD 12.55 bn. The uptick was driven by a 7.5% expense hike in Saudi Arabia’s banking sector to USD 4.2 bn.

GCC banks’ aggregate net interest margins held steady at 3.2% for the fifth consecutive month, signaling that it has peaked already as elevated interest rates over the past year are now fully priced in.

With surging funding costs and anticipated rate cuts, net interest margins are expected to “come under pressure” unless they were offset by “cheaper sources of funding and continued growth in lending,” according to Kamco.

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