Despite the shift toward a lower interest rate environment amid global monetary easing, Saudi Arabia’s banks showed financial resilience and growth throughout 2025. The Kingdom’s top lenders consistently reported double-digit growth in net income across the first three quarters of the year, while lending activity remained strong and banks worked to improve their operational efficiency.

The year was off to a good start, with Saudi-listed banks reporting record-breaking performances in 1Q 2025 as top-line revenues reached USD 34.6 bn. The sector’s aggregate net income grew by 6.3% q-o-q to SAR 22.2 bn, supported by higher fee income and cost-efficiency measures. Saudi Arabia also led the GCC in credit growth, registering a 16.3% y-o-y increase in outstanding credit facilities.

Sustained momentum: The sector’s growth trajectory continued through the following two quarters, with net income rising 18% y-o-y in the second quarter to reach SAR 23 bn. By the third quarter, major banks reported higher-than-expected earnings, with aggregate net income increasing 15.1% y-o-y to SAR 23.6 bn.

Shifting liquidity dynamics

While profitability remained high, the sector faced tightening liquidity toward the end of the year. Customer deposits in Saudi banks saw their first decline in five quarters during the back half of 2025. Additionally, many banks experienced a narrowing of net interest margins (NIM) as they began to feel the impact of interest rate cuts implemented in line with the US Federal Reserve.

REFRESHER- The Saudi Central Bank (SAMA) implemented three consecutive interest rate cuts in alignment with the Fed. Following a cumulative reduction of 75 basis points over the year, the repo rate was lowered to 4.25% and the reverse repo rate to 3.75%.

3Q saw a surge in loan-to-deposit ratio of 97.6%, highlighting challenges on the liquidity front in the banking sector and indicating higher external funding requirements in the near term.

What’s on the horizon for 2026

The outlook for the Saudi banking sector is currently “neutral,” characterized by a favorable operating environment anchored by Vision 2030 initiatives and robust non-oil GDP growth, which is forecast to average 4.5% through 2027, according to a Fitch note seen by EnterpriseAM.

The sector is facing a tightening of liquidity that is expected to moderate loan growth. This liquidity pressure has led to an increased reliance on non-deposit funding and a rising cost of funding (despite falling interest rates), which in turn has compressed NIMs. Meanwhile, the agency sees net foreign assets remaining in negative territory in 2026, and to reach levels below 5% by the end of 2026.

Asset quality in Saudi Arabia is expected to remain among the strongest in the GCC, with only a marginal uptick of 10 bps in impaired-loan ratios. The ratings agency sees capitalization levels as adequate, supported by strong internal capital generation and dividend flexibility, even as capital buffers have seen a slight decline due to rapid growth.

ALSO- Fitch expects issuance volumes to stay elevated in 2026, driven by over USD 10 bn in maturities, USD 1.8 bn of AT1 instruments reaching first call dates, strong financing demand, and lower interest rates.

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