Saudi Arabia's largest listed banks recorded a 3.9% increase in customer deposits during the first quarter of 2026, enhancing liquidity and underscoring the sector's resilience, according to a new analysis by Alvarez & Marsal (A&M).
Deposit Growth Outpaces Loan Expansion
The deposit growth outpaced loan expansion, with aggregate net loans and advances rising only 1.6% quarter on quarter. This shift reduced the sector's loan-to-deposit ratio by 2.4% quarter on quarter to 104.1%, signaling improved liquidity conditions.
The A&M KSA Banking Pulse report, which tracks the Kingdom's 10 largest listed banks, highlighted that this performance occurred despite a complex global interest rate environment influenced by ongoing Middle East conflicts, elevated energy prices, and divergent monetary policies worldwide.
Key Financial Metrics
Aggregate operating income declined 2.3% quarter on quarter to SR40.4 billion ($10.76 billion), primarily due to a 13.2% drop in non-interest income. Net interest income saw modest growth of 1.1% quarter on quarter. The net interest margin remained steady at 2.84%, supported by lower funding costs, as the cost of funds declined to 3.2%.
Return on assets held stable at 2%, while return on equity moderated slightly to 14.7%. The cost-to-income ratio rose to 30.1%, reflecting higher operating expenses, including increased technology investment spending.
Asset Quality and Risk Management
Asset quality remained healthy, with the non-performing loans ratio stable at 0.9% and the cost of risk improving to 0.15%. The coverage ratio strengthened to 162.6%, indicating prudent risk management and substantial provisioning buffers.
Sam Gidoomal, managing director and head of Middle East Financial Services at A&M, commented: “This performance in the first quarter underscores the resilience of Saudi Arabia’s banking sector, supported by healthy loan growth, stable margins, and easing credit costs.” He added: “Nevertheless, banks witnessed emerging pressures from weaker non-interest income generation, higher operating expenditure, and lower benchmark rates.”
Outlook and Digital Transformation
Looking ahead, A&M expects asset quality to remain healthy, though banks are likely to maintain sustainable provisioning buffers amid ongoing geopolitical uncertainty. The report noted: “Digital and AI adoption will remain a key focus, with banks leveraging automation and AI to improve efficiency, risk management, and customer engagement, while the impact on operating efficiency remains a key watchpoint.”
The report covers the 10 largest banks by asset size, including Saudi National Bank, Al Rajhi Bank, Riyad Bank, Saudi Awwal Bank, Banque Saudi Fransi, Alinma Bank, Arab National Bank, Saudi Investment Bank, Bank Albilad, and Bank Aljazira.
