Saudi Arabia's Banks Exhibit Continued Growth In Loans, Deposits, And Profitability In Q2 2024

Alvarez & Marsal (A&M) has published its latest KSA Banking Pulse for Q2 2024, revealing a 3.2% quarter-on-quarter (QoQ) rise in Loans & Advances (L&A) among the 10 largest Saudi banks. This growth was mainly driven by a 7.2% increase in corporate and wholesale banking. Deposits also saw a 2.3% QoQ increase, with time deposits growing by 4.1%.

Operating income for these banks rose by 1.9% QoQ, reaching SAR 34.8 billion in Q2'24. This was largely due to a 2.5% growth in net interest income (NII), which amounted to SAR 27.4 billion, despite a slight decline of 0.1% in non-interest income.

Key Performance Metrics

The report highlights several key trends for Q2 2024. The loans-to-deposit ratio (LDR) increased by 0.8 percentage points to 97.8%. Aggregate net interest margin (NIM) contracted by 2 basis points to 2.94%, while the yield on credit (YoC) rose by 10 basis points to 8.4%. The cost of funds also increased by 10 basis points to reach 3.4%.

Cost efficiencies improved as well, with the cost-to-income (C/I) ratio improving by 29 basis points to reach 31.3%. Operating expenses grew at a slower pace than operating income, contributing to this improvement.

Profitability and Risk

The cost of risk for Saudi banks reached a multi-year low, improving by 11 basis points to settle at 0.28%. However, half of the top ten banks reported some deterioration in this metric.

Aggregate profit after tax increased by 4.3% QoQ to SAR 19.5 billion, driven by NII growth and a significant reduction in impairment charges, which fell by 27%. This led to an expansion in return on equity (RoE) to 16.8%, while return on assets (RoA) remained steady at 2%.

A&M's KSA Banking Pulse evaluates data from the 10 largest listed banks in Saudi Arabia, comparing Q2'24 results against Q1'24 results using independently sourced market data and sixteen different metrics.

Asad Ahmed, Managing Director and Head of Middle East Financial Services at A&M commented, "The continued positive performance in Q2 2024 reflects a balance of growth and improved cost efficiencies among Saudi Banks. Profitability has increased primarily due to an increase in net interest income (NII) and a significant reduction in impairment charges.

"As the Saudi Central Bank (SAMA) maintains interest rates in line with the US Fed, a potential rate cut in September, could begin to affect interest margins. Banks are no doubt looking to see how the effect of rate cuts plus any regional headwinds are best handled; focus on non-interest income (mainly fees and commission income) and improved cost efficiencies, is most likely to remain central going forward."