Bank Ratios in the Saudi Financial Market: Concept, Analysis, and Latest Data

The term "bank ratios" in the Saudi financial market refers to a set of relative metrics that determine the soundness and stability of the banking sector. The most prominent indicators include:

1. Loan-to-Deposit Ratio: Reflects banks’ ability to finance loans from customer deposits and is a direct measure of banking liquidity. Moderate rates (70-80%) indicate a balance between lending and reserves.

2. Capital Adequacy Ratio: Measures the strength of a bank’s capital relative to its risk-weighted assets and is a key standard for financial solvency. Saudi banks often exceed the minimum regulatory requirement by a wide margin.

3. Non-Performing Loan Ratio: Assesses the quality of bank assets by comparing non-performing loans to total loans; the lower the ratio, the stronger the credit policies.

4. Sector Market Share: Reflects the banking sector’s weight within the total market capitalization of the Saudi stock market, indicating the importance of banks in the overall economic structure.

Together, these indicators form the complete picture of what is known as bank ratios in the Kingdom and provide a solid foundation for performance and risk analysis.

The loan-to-deposit ratio indicates the relationship between the total loans granted by banks and the total deposits they receive. In the Saudi financial market, this ratio has remained stable for years at around 70-80%, with an average of 75% in mid-2024. A high ratio indicates greater reliance on deposits to fund lending, reflecting growing demand for financing, but may also signal liquidity pressures if it exceeds safe limits. Conversely, a low ratio indicates ample liquidity but may mean limited lending growth opportunities. Saudi banks follow prudent policies to manage this ratio according to market variables, and regulators monitor it continuously to prevent crises. Maintaining this ratio at moderate levels enhances confidence in the stability of the Saudi banking sector.

The capital adequacy ratio is one of the most important indicators of banks’ financial security and reflects their ability to absorb financial shocks. According to Basel III rules, this ratio should not fall below 8%, but Saudi banks often significantly exceed this, with an average of 18% in 2024. Capital here includes both core and supplementary capital, set against risk-weighted assets. A higher ratio means the bank holds sufficient reserves to face potential losses, reducing the likelihood of default or bankruptcy. The Saudi Central Bank (SAMA) imposes strict controls to ensure this ratio is calculated accurately and requires banks to maintain high levels, which enhances the stability of the Saudi financial system.

The non-performing loan (NPL) ratio is one of the most important indicators of asset quality on banks’ balance sheets. In Saudi Arabia, banks have maintained very low rates for this ratio (around 1.5% at the end of 2024), reflecting strict lending standards and a robust local economy. A low ratio of non-performing loans indicates successful risk management by banks and boosts customer and investor confidence. Provision coverage ratios often exceed 120%, enabling banks to absorb any sudden increase in non-performing loans without impacting capital or profits. Regular monitoring of this indicator is vital to ensure the continued stability of the banking sector.

The banking sector is one of the largest and most important sectors listed on the Saudi financial market (Tadawul), with bank stocks accounting for about a quarter to a third of total market capitalization. At the start of 2024, the combined market value of listed banks exceeded SAR 750 billion. This significant weight highlights the importance of banks in influencing Tadawul indices overall, making the study of bank ratios and their movements essential when analyzing the Saudi market. The financial performance of major banks such as Saudi National Bank and Al Rajhi Bank directly impacts the main market index and serves as a barometer for national economic confidence.

In addition to traditional ratios, several profitability indicators are used to measure the performance of Saudi banks. The most notable include:

- Return on Equity (ROE): Averaged between 16-18% in 2024, among the highest regionally.
- Return on Assets (ROA): Reflects the efficiency of asset use in generating profits.
- Price-to-Earnings Ratio (P/E): Ranged between 11-15 times for most major banks.
- Dividend Yield: Ranged between 3-4.5% for leading banks.

These indicators allow analysts and investors to assess the investment attractiveness of the banking sector, but do not replace an understanding of structural ratios such as capital adequacy and liquidity.

The Saudi banking sector has seen notable growth in loans and deposits in recent years, with loans rising to SAR 2.1 trillion and deposits to SAR 2.8 trillion by mid-2024. The loan-to-deposit ratio remained stable at about 75%, reflecting banks’ ability to continue financing without exposing themselves to high liquidity risks. Banks have also continued to strengthen their capital through retained earnings and new share issuances, raising the capital adequacy ratio to 18%. Meanwhile, the non-performing loan ratio remained low despite rapid economic growth, indicating strict credit policies. These developments support the image of a strong and stable banking sector capable of meeting future challenges.

The Saudi banking sector consists of 11 major commercial banks, including both conventional and Islamic banks. The three largest banks (Saudi National Bank, Al Rajhi, Riyad Bank) control more than half of the sector’s assets and are the main drivers of most financial indicators. Competition among these banks focuses on attracting large clients, financing government and private projects, and providing digital services. The sector is also witnessing the entry of fintech companies and the expansion of digital banks, increasing competitiveness and spurring innovation. Regulatory bodies (SAMA and the Capital Market Authority) closely monitor and impose strict rules to ensure sector safety and foster a healthy competitive environment.

The Saudi banking sector is characterized by its diversity between Islamic and conventional banks. Islamic banks such as Al Rajhi and Albilad offer Sharia-compliant products, while conventional banks rely on a broader range of financial instruments. Financial ratios (such as loan-to-deposit, capital adequacy, NPL) are used to determine the efficiency of each model in managing risks and achieving profits. Competition drives each type to develop products that meet customer needs and comply with both Sharia and regulatory requirements, enhancing the sector’s overall strength and increasing its appeal to both local and international investors.

The Saudi banking sector has undergone rapid digital transformation in recent years, with widespread adoption of banking services via apps and the internet. This has led to increased deposit attraction, improved risk management using artificial intelligence, and reduced operating costs. All these developments have positively impacted bank ratios: liquidity has increased, non-performing loan ratios have declined, and capital adequacy has improved thanks to operational efficiency. At the same time, fintech companies have introduced new competition for traditional banks, especially in consumer finance and payments, prompting banks to adopt innovative strategies and collaborate with fintech platforms.

The Saudi Central Bank (SAMA) and the Capital Market Authority play a pivotal role in monitoring and regulating bank ratios through strict regulations and Basel III standards. These controls include setting minimum capital adequacy levels, imposing liquidity management standards, and continuously monitoring asset quality. Regulators also track market developments and adjust rules to keep pace with economic and technological changes. This strict regulatory environment has helped the banking sector withstand crises and ensured that Saudi banks maintain strong financial ratios even during challenging economic periods.

Despite the strength of the Saudi banking sector, there are challenges that may affect financial ratios in the future, such as a slowdown in the global economy or falling oil prices, rising lending costs due to higher interest rates, or the introduction of stricter banking regulations. Competition from fintech companies and cybersecurity risks also add additional pressures. Banks’ ability to adapt to these challenges and maintain ratios such as capital adequacy and non-performing loans within safe limits will be the decisive factor in the sector’s continued stability.

Bank ratios and financial indicators can be tracked through several reliable sources:
- Saudi Central Bank (SAMA) website: Publishes monthly and quarterly reports on loans, deposits, and asset quality.
- Saudi Stock Exchange (Tadawul) website: Provides real-time data on stock prices, earnings, and P/E ratios for listed banks.
- Annual bank reports: Include detailed analyses of each bank’s financial ratios.
- Global credit rating agencies (Moody’s, Fitch, S&P): Issue periodic reports on the solvency of Saudi banks.
- Local financial news (SPA, Argaam, Bloomberg): Cover developments and news impacting the sector.
Relying on these sources ensures an accurate and up-to-date picture of the Saudi banking sector’s ratios.