Banking Ratio in the Saudi Stock Market: Concept, Importance, and Comprehensive

The banking ratio in the Saudi stock market covers a set of indicators that illustrate the importance and impact of the banking sector on the national economy. Generally, the banking ratio refers to the relative weight of bank assets or the capitalization of the banking sector within the total Saudi stock market. This ratio often ranges between 25% and 35%, making banks one of the largest sectors on Tadawul in terms of market value and profits. The concept also includes indicators such as the loan-to-deposit ratio, capital adequacy, profitability, liquidity, and the ratio of Islamic to conventional banks. This is framed within a regulatory environment aimed at enhancing financial stability, supporting economic growth, and ensuring banks’ solvency to withstand market changes. The banking ratio also reflects investor confidence, as strong sector performance often attracts local and international investments and reinforces the stability of the Saudi stock market against challenges.

The market share of the banking sector is a key component of the banking ratio. It is typically calculated by comparing the market capitalization of listed banks to the total capitalization of the Saudi stock market. In 2024, data indicates that banks represent around 30% of the market capitalization, approximately SAR 1 trillion out of a total SAR 3.3 trillion. This significant weight reflects the importance of banks in driving market indices and their contribution to national economic growth. This is attributed to the vast assets of banks, profit growth, and the expansion of credit and lending. The sector’s concentration among a few major banks (such as Al Rajhi, SNB, Riyadh Bank, Alinma) further strengthens the banking ratio’s influence on the market. Understanding this share is essential for any investment or economic analysis related to the Saudi market.

The loan-to-deposit ratio is one of the most important indicators when analyzing the banking sector. This ratio reflects how banks utilize customer deposits to grant loans, providing insight into their ability to generate profits while maintaining liquidity. In Saudi Arabia, the loan-to-deposit ratio typically ranges between 80% and 100%. A ratio close to or above 100% indicates intensive investment of deposits in loans, which may boost profitability but requires careful risk and liquidity management. By mid-2024, bank loans exceeded SAR 2.1 trillion compared to about SAR 2.8 trillion in deposits, resulting in a ratio of around 75%. This remains within the safe limits set by the Saudi Central Bank (SAMA), aimed at controlling risks and ensuring sector stability.

The Capital Adequacy Ratio (CAR) measures a bank’s commitment to maintaining sufficient capital against the risks in its assets. Basel global standards and SAMA regulations in Saudi Arabia require this ratio to be no less than 12%. Saudi banks typically maintain higher ratios, ranging from 15% to 20%. A higher ratio reflects a strong capital base, giving banks greater flexibility to face sudden crises or loan losses. The capital adequacy ratio also affects banks’ ability to expand lending and diversify their financial portfolios. Continuous monitoring of this ratio is a key indicator of the health and sustainability of the Saudi banking sector.

Bank profitability ratios include indicators such as Return on Assets (ROA) and Return on Equity (ROE). ROA measures the efficiency of asset use to generate profits, while ROE measures returns generated for shareholders’ equity. In Saudi banks, ROA ranges between 1–3%, while major banks achieve ROE between 10–15%. These ratios reflect the sector’s ability to deliver sustainable and attractive profits, especially with widening interest margins and increasing demand for banking services. Profitability ratios are fundamental in assessing the attractiveness of bank stocks for investors and help compare the performance of conventional and Islamic banks.

Liquidity ratios are critical indicators in assessing banks’ strength. Key among them is the ratio of high-quality liquid assets to short-term funding. Saudi banks maintain high liquidity ratios in line with SAMA’s directives, ensuring their ability to meet immediate obligations. In 2024, banks continued to enhance liquidity by managing their asset portfolios prudently and holding a significant portion of assets in cash or near-cash instruments. High liquidity ratios help reduce risks associated with sudden deposit withdrawals or rapid economic changes, increasing confidence among depositors and investors.

The Saudi market has witnessed notable growth in the share of Islamic banks in recent years. Today, Islamic banks (such as Al Rajhi, Alinma, Albilad, Aljazira) control about 40–50% of the total assets of the listed banking sector. This is due to rising demand for Sharia-compliant products and a broad customer preference for such services. Islamic banks are often more attractive to certain investors, sometimes reflected in higher price-to-earnings ratios compared to conventional banks. The success of conventional banks in establishing Sharia-compliant windows or units further boosts competition and increases the Islamic banks’ share within the Saudi market.

Recent data shows continued growth of the Saudi banking sector in 2024. Bank assets exceeded SAR 3.3 trillion by year-end, driven by rising deposits and loan expansion. Loan value reached about SAR 2.1 trillion, while deposits amounted to SAR 2.8 trillion. These figures reflect strong demand for financing and banks’ expansion in supporting key sectors such as housing and SMEs. The sector’s profits grew to over SAR 60 billion in 2024, with ongoing improvement in financial indicators and profitability ratios. These data highlight the importance of monitoring the evolution of the banking ratio as a strategic indicator of Saudi economic health.

The strength of the Saudi banking sector is distributed among several major banks dominating the market. For example, Al Rajhi Bank’s share price in 2024 was around SAR 146, with a market value of SAR 270 billion, a P/E ratio of 17, and dividend yields near 2.4%. Saudi National Bank (SNB) recorded a market value exceeding SAR 400 billion and a P/E ratio of 15. Riyadh Bank, Alinma, Aljazira, Banque Saudi Fransi, and others show varying performance ratios depending on asset size, profitability, and liquidity. Overall, Saudi banks offer stable dividend yields (2–4%) and attractive profitability ratios for investors, strengthening the sector’s position within the Saudi stock market.

Saudi banks are significantly affected by changes in global and local interest rates. The Saudi Central Bank usually follows the US Federal Reserve’s moves, so rate hikes or cuts impact banks’ profit margins. In 2024, higher interest rates increased loan yields, helping to improve net interest income. However, higher rates may also raise borrowing costs for individuals and businesses and increase default risks. Effective risk management and maintaining high liquidity and capital adequacy ratios are crucial to ensuring stability.

The Saudi banking sector is experiencing rapid digital transformation and adoption of modern financial technologies (FinTech). Major banks have invested in developing digital infrastructure and offering advanced online banking services such as instant loans and remote account opening. The market is also seeing increased competition from emerging digital banks and fintech companies. The expected entry of independent digital banks in 2025 is set to reshape competition and expand the customer base. This transformation reflects Saudi banks’ desire to keep pace with global changes and meet the needs of younger and digital-savvy clients.

Government regulations and Saudi Vision 2030 initiatives play a pivotal role in the development of the banking sector. The government has launched programs to encourage banks to finance major national projects (such as NEOM, renewable energy, housing), and SAMA has issued directives to enhance transparency and financial disclosure. The state also supports bank mergers to improve efficiency and works on developing the legislative environment to further stabilize and grow the sector. These regulations help raise capital adequacy, increase banks’ share in financing the economy, and stimulate healthy competition among financial institutions.

The Saudi banking sector faces several challenges in the coming years, most notably global interest rate fluctuations, increased digital competition, evolving capital and reserve requirements, and macroeconomic changes such as oil prices and national economic growth. The emergence of new digital banks and the expansion of non-bank finance companies require traditional banks to enhance innovation and service development. It is important to monitor indicators such as non-performing loan ratios, capital adequacy developments, and shifts in market share between Islamic and conventional banks. The banking ratio remains a strategic indicator that must be closely followed to understand the dynamics of the Saudi market and anticipate the sector’s future.