Banks in Saudi Arabia: Transformation, Competition, and Future Prospects

The banking sector in Saudi Arabia is considered the backbone of the financial system, playing a crucial role in supporting economic growth and achieving financial stability. The sector consists of a wide range of institutions, including commercial, Islamic, specialized banks, and branches of foreign banks, supervised by the Ministry of Finance, the Capital Market Authority, and the Saudi Central Bank (SAMA). Saudi banks are subject to strict regulatory standards aimed at protecting depositors' funds and enhancing the resilience of the financial system. As of mid-2024, the number of licensed banks exceeded 30, distributed between local and foreign banks.

The importance of Saudi banks is manifested in their role as a primary channel for converting savings into productive investments. They provide individuals and businesses with access to financing and deposit solutions, managing a vast network of branches and digital services. They also play a vital role in financing major developmental projects, especially with the accelerated implementation of Vision 2030 plans, where banks have become the primary financial partner for both the government and private sectors in financing infrastructure, housing, and industrial projects.

From a regulatory perspective, the central bank imposes advanced standards for risk and liquidity management, emphasizing the application of Basel agreements and international accounting standards. Annual reports from SAMA indicate that Saudi banks have achieved high capital adequacy ratios (18-20%) and low non-performing loan ratios (2-3%), reflecting the sector's stability and its ability to absorb shocks. The sector is also characterized by high liquidity levels, often exceeding banks' operational requirements, providing them with flexibility in facing economic changes and external risks. This regulatory and financial stability has made the Saudi banking sector one of the largest and strongest financial sectors in the Middle East, attracting both local and international investors.

The Saudi banking sector has witnessed strong financial performance during 2023 and 2024, reflected in the growth of most key performance indicators. According to SAMA statistics for 2024, total assets of Saudi banks exceeded SAR 3.5 trillion, compared to approximately SAR 3.1 trillion at the end of 2023, representing an annual growth rate of over 12%. This growth reflects the expansion of banking operations and the increasing demand for financial services alongside rising economic projects.

Bank deposits have also recorded a significant increase, reaching around SAR 2.8 trillion at the end of 2024, up from SAR 2.5 trillion in 2023. This reflects the confidence of individuals and businesses in the stability of the banking sector, along with increased savings amid an improving economic environment. Deposits are distributed among demand deposits, time deposits, and investment deposits, with a growing proportion of digital deposits due to the shift towards electronic banking services.

In terms of loans and financing, total financing extended by banks surpassed SAR 2.2 trillion by the end of 2024, with an annual growth rate of nearly 10%. This growth included real estate financing for individuals and businesses, as well as financing directed towards infrastructure projects and small and medium-sized enterprises. Data from the first quarter of 2025 indicates continued growth in deposits and loans, with most assets denominated in local currency (SAR), mitigating exposure to exchange rate fluctuations.

These figures reflect the strength and resilience of the Saudi banking sector and its ability to meet the needs of the national economy and support the expansion and diversification plans led by Vision 2030. They also enhance the sector's attractiveness to local and foreign investors seeking financial stability and competitive returns.

The structure of the Saudi banking sector is characterized by diversity, comprising a mix of commercial, Islamic, and specialized banks, in addition to branches of internationally licensed banks by the Saudi Central Bank (SAMA). Major commercial banks, such as the National Bank of Saudi Arabia (SNB), which emerged from the merger of the National Commercial Bank with Samba Financial Group, lead the way in terms of assets and capitalization. Following closely is Al Rajhi Bank, recognized as the largest Islamic bank in the world, with a strong presence in real estate financing and retail services.

The list of major banks also includes Riyad Bank, which has an extensive network and excels in corporate services, SABB (the local partner of HSBC), Arab National Bank, Saudi French Bank (the partner of Credit Agricole), Al Bilad Bank, and Alinma Bank. Collectively, these banks control about 50% of the total banking assets in the market, benefiting from strong capital, technological capabilities, and a broad customer base.

In addition to traditional banks, there are several medium and small banks that offer specialized lending or retail services. Recent years have also seen the entry of new digital banks, which have received SAMA licenses to operate entirely online without physical branches, enhancing competition and providing opportunities to serve wider segments of society.

Some Saudi banks operate in partnership with international financial institutions, allowing them to offer advanced products and services and attract foreign capital. All banks are subject to the same regulatory and supervisory standards, focusing on capital adequacy, asset quality, liquidity management, and compliance with international standards. This structural diversity reflects the sector's flexibility and its ability to meet various customer needs while supporting economic growth in the Kingdom.

Saudi banks play a pivotal role in implementing the Kingdom's Vision 2030, which aims to diversify the Saudi economy and reduce dependence on oil. Banking institutions are the primary financial partner for the government in financing major projects across housing, industry, tourism, infrastructure, and renewable energy sectors. By providing long-term financing, banks contribute to accelerating the execution of major projects such as NEOM, Qiddiya, and the Red Sea.

Banks are also developing new financial products that cater to the needs of non-oil sectors, such as real estate financing for individuals, financing for small and medium enterprises, and digital banking products. Some banks have launched special programs to finance entrepreneurs, women, and youth, as part of efforts to enhance financial inclusion and promote economic participation in society.

On the other hand, banks support privatization efforts and encourage foreign investment by providing financing channels for local and international investors. They also contribute to the development of the Saudi capital market by issuing diverse financial instruments, such as sukuk and bonds, enhancing market depth and increasing its attractiveness.

The Saudi banking system is characterized by high flexibility in responding to government policies, relying on high liquidity reserves and advanced risk management. Reports indicate that Saudi banks have doubled their contribution to financing developmental projects in recent years, reflected in the increased volume of loans granted to the private sector and the growth of non-oil GDP. Thus, banks emerge as a key element in achieving the goals of Vision 2030 by redirecting financial resources towards promising sectors and supporting sustainable growth.

The Saudi banking sector is subject to an advanced regulatory framework aimed at ensuring financial stability and protecting the interests of depositors and investors. The Saudi Central Bank (SAMA) oversees all banks operating in the market and establishes strict regulations that include capital adequacy standards, risk management, liquidity, and compliance with international standards such as Basel agreements and International Financial Reporting Standards (IFRS 9).

SAMA works in coordination with the Capital Market Authority to monitor the performance of banks and ensure their compliance with transparency and full financial disclosure. Regulatory authorities require banks to periodically disclose financial data, capital ratios, non-performing loan rates, and liquidity, enabling continuous assessment of the sector's performance and enhancing investor confidence.

Significant developments in the regulatory environment in recent years include raising the foreign ownership limit in listed banks from 30% to 40%, aimed at attracting foreign capital and enhancing competitiveness. SAMA has also launched programs to encourage financial innovation (FinTech), including granting licenses to digital banks and developing a legal framework for open banking services.

Regulatory authorities impose strict penalties for violations and closely monitor the implementation of risk management policies, customer data protection, and anti-money laundering and counter-terrorism financing efforts. They also emphasize the importance of corporate governance, board independence, and activating internal audit committees. This evolving regulatory framework has contributed to strengthening the resilience of the Saudi banking sector, enabling it to effectively face local and global challenges.

Financial indicators are essential tools for evaluating the performance of Saudi banks and measuring their strength and stability. Among the most prominent of these indicators is the Capital Adequacy Ratio (CAR), which reached approximately 18-20% in 2024, significantly exceeding the internationally recommended minimum (12.5%). This ratio reflects the banks' ability to absorb sudden losses and provide strong protection for depositors.

The Non-Performing Loan (NPL) ratio is another important indicator of asset quality, ranging between 2-3% of the total credit portfolio in 2024, indicating effective credit risk management. The Net Interest Margin (NIM) has stabilized between 3-4%, supported by rising global interest rates and the robustness of banks' funding bases.

The Price-to-Earnings (P/E) ratio for Saudi bank stocks is relatively low, ranging between 8-12 times in 2024, reflecting the sector's strong earnings and low risks. Additionally, the average Return on Equity (ROE) was around 10-15%, a competitive level compared to regional markets. In terms of cash distributions, Saudi banks distributed approximately SAR 25-30 billion in 2024, with an average dividend yield of 4-5% for banking stocks.

These indicators provide a clear picture of the strength of the Saudi banking sector, its commitment to international standards, and its ability to achieve sustainable profitability while protecting the rights of investors and depositors. This data is based on SAMA reports, periodic disclosures from listed banks, and analyses from financial research firms.

Competition among Saudi banks is characterized by intensity and diversity, especially with the growing demand for digital banking services and the entry of new players from digital banks and financial technology (FinTech) companies. Major banks such as National Bank, Al Rajhi, and Riyad Bank focus on developing electronic services and enhancing customer experience through apps and websites, investing heavily in technological infrastructure and cybersecurity.

One of the prominent competitive strategies is expanding the customer base by offering innovative financing products, such as real estate financing, consumer loans, and small and medium enterprise financing programs. Banks also compete on interest rates, promotional offers, and providing integrated banking solutions that meet the needs of both individuals and businesses.

With the entry of newly licensed digital banks (such as Spot and Naqam), the level of competition in providing fast and smart digital banking services has increased, prompting traditional banks to accelerate their digital transformation and offer additional competitive advantages. At the same time, banks face challenges in maintaining profitability, especially with expectations of declining global interest rates and rising costs of technology investment.

At the regulatory level, authorities are working to enhance fair competition and protect consumers, while raising the foreign ownership percentage in banks to attract international investments. Conversely, the market share of individuals remains relatively limited compared to large entities, while the state controls some major developmental financing. Competition continues to drive banks towards innovation and the development of products and services that meet changing customer expectations while maintaining financial stability and regulatory compliance.

The Saudi banking sector has undergone extensive digital transformation in recent years, driven by changing customer behavior and the evolution of financial technologies. Major banks have invested heavily in developing mobile applications, online banking services, and electronic payment systems, enabling customers to conduct most financial transactions without the need to visit traditional branches.

Among the most notable transformations, the Saudi Central Bank (SAMA) granted licenses to fully digital banks such as 'Spot' and 'Naqam' during 2023-2024, which offer all their services online without physical branches. This development has enhanced the inclusiveness of banking services and opened the door to new customer segments, especially youth and those who previously faced limited access to financial services.

SAMA has also launched an 'Open Banking' framework, allowing customers to share their banking data with third-party financial service providers. This framework encourages innovation in small loans, e-wallets, and money management services, providing customers with more personalized and flexible financial solutions.

Digital transformation has improved the efficiency of banking operations, reduced operational costs, and increased customer satisfaction. Conversely, it has imposed new challenges related to cybersecurity and data protection, prompting banks to invest in advanced security technologies and develop specialized human resources in technology. Thus, digital innovation has become a key factor in enhancing the competitiveness of the Saudi banking sector and its readiness to keep pace with future transformations.

The Islamic banking sector in the Kingdom of Saudi Arabia is one of the largest sectors globally, comprising major banks such as Al Rajhi Bank, Al Bilad Bank, and Alinma Bank. These banks are distinguished by their full commitment to Islamic law, avoiding interest-based transactions and relying on financing structures such as Murabaha, Musharakah, and Mudarabah.

Al Rajhi Bank is recognized as the largest Islamic bank in the world in terms of assets and customer base, offering a wide range of banking products for individuals and businesses, including real estate financing, personal financing, credit cards, and Sharia-compliant investment accounts. Al Bilad Bank and Alinma Bank also stand out for their innovation in digital services and Islamic banking products.

Saudi Islamic banks benefit from the increasing demand for Sharia-compliant financial products, both from citizens and residents, and play a pivotal role in financing developmental projects, housing, and small and medium enterprises. They also benefit from the rapid growth in real estate financing, which adheres to Sharia guidelines.

Islamic banks are subject to the same regulatory and financial standards as conventional banks, including capital adequacy, asset quality, and risk management. Financial indicators show that Islamic banks achieved competitive profitability and cash distribution ratios in 2024, supported by rising demand for Islamic financing products. With ongoing development in digital services and expanding customer bases, opportunities continue to arise for Islamic banks to sustain growth and enhance their position in the Saudi banking market.

The performance of the Saudi banking sector is directly influenced by local and global economic developments, particularly concerning oil prices, government spending, and the monetary policies of the Saudi Central Bank (SAMA). With rising oil prices and increased government revenues, deposits in banks rise, enhancing their ability to lend and finance developmental projects.

During 2023 and 2024, global interest rates reached high levels due to tightening monetary policies aimed at combating inflation. SAMA reacted to these developments by raising local interest rates, leading to increased bank profits from existing deposits and loans, but conversely affecting the demand for new loans, particularly real estate and consumer loans. Beginning in 2025, signs of easing monetary policies emerged, as the central bank announced a slight reduction in lending rates and the reserve requirement ratio, providing additional liquidity and supporting continued growth in bank lending.

Saudi banks contribute to the stability of the national economy by managing liquidity and efficiently allocating financial resources, but they remain susceptible to risks from economic fluctuations, such as falling oil prices or reduced government spending. In such cases, SAMA may resort to stimulative measures to ensure the continuity of lending and support vital economic sectors. Overall, the performance of the banking sector reflects high resilience in facing shocks, supported by strong liquidity reserves and solid capital levels, enhancing its stability in the face of economic challenges.

The Saudi banking sector faces a range of risks that require effective management and advanced preventive strategies. Among the most prominent of these risks are credit risks arising from the possibility of borrower defaults, especially amid economic fluctuations or rising unemployment rates. Data from 2024 indicate that the ratio of non-performing loans ranged between 2-3%, reflecting the efficiency of lending and collection policies.

Interest rate risks are significant challenges, as rapid changes in global interest rates affect profit margins and lending costs. During periods of rising interest rates, banks' profits on deposits increase, but demand for new loans may decline. Conversely, in the case of falling interest rates, profit margins may shrink, requiring banks to diversify income sources.

Liquidity risks pose challenges in the event of sudden economic shocks or declining cash flows. However, Saudi banks currently enjoy high liquidity levels, supported by substantial deposits and foreign currency reserves at the central bank. Additionally, operational and security risks are highlighted, especially with the expansion of digital services, as banks face increasing cyber-attack threats, prompting them to invest in cybersecurity and continuous staff training.

All Saudi banks are subject to advanced risk management programs, including maintaining adequate financial reserves, diversifying funding sources, and adhering to international compliance standards. Regulatory authorities closely monitor the implementation of risk management policies to ensure the protection of depositors' funds and the stability of the financial system.

The Saudi banking sector has witnessed a series of regulatory and technological developments during 2024 and 2025 that have reshaped the banking landscape. Among the most notable developments is SAMA granting licenses to the first fully digital banks such as 'Spot' and 'Naqam', which offer all banking services online without the need for traditional branches. This shift towards digitization has enhanced the inclusiveness of banking services and provided new opportunities to reach wide customer segments, especially youth and remote areas.

In the regulatory context, SAMA launched a legal framework for open banking, allowing consumers to share their banking data with financial technology companies, enhancing innovation and the development of more flexible and customized financial products. Regulatory authorities have also raised the foreign ownership limit in listed banks from 30% to 40%, aimed at attracting international investments and enhancing competitiveness.

The sector has also seen an expansion in financing small and medium enterprises, with the launch of affordable financing programs in collaboration with development banks and government companies, supporting financial inclusion goals and Vision 2030. The role of banks in financing sustainable and environmentally friendly projects has also been enhanced by providing financial products that support renewable energy and reduce carbon footprints.

These developments highlight the strategic direction of the Saudi banking sector towards digital innovation, enhancing transparency, and attracting foreign investments, thereby strengthening its stability and competitiveness both regionally and internationally. All these initiatives are based on an advanced regulatory framework that emphasizes consumer protection and the development of the banking business environment.

Saudi banks share similarities with their counterparts in the Gulf Cooperation Council (GCC) countries in terms of their pivotal role in financing development and infrastructure, but there are significant differences that distinguish the Saudi banking sector. First, the Saudi financial market is the largest and most liquid in the region, providing Saudi banks with a broader customer base and financial resources. Additionally, Saudi banks are subject to stricter regulatory oversight and transparency, thanks to SAMA's and the Capital Market Authority's supervision.

In terms of financial performance, Saudi banks often outperform in return on assets and equity ratios compared to banks in Kuwait, Bahrain, or Oman, attributed to the size of the Saudi economy and the massive reserves held by the government. Saudi banks also benefit from the stability of the riyal pegged to the dollar and the foreign currency reserves provided by the state, giving them flexibility in facing global market fluctuations.

Conversely, Gulf banks share the impact of oil price fluctuations, as any sharp decline in prices reflects on liquidity levels and government spending, consequently affecting banking activity. All Gulf banks also face challenges related to digital transformation, competition with financial technology companies, and increasing regulatory compliance requirements.

Overall, Saudi banks stand out due to their size, strong capitalization, and advanced technological infrastructure as a leading banking force in the region, continuing to develop products and services that meet the needs of the local and regional markets, contributing to achieving economic diversification and sustainable development goals.

Enhancing financial inclusion is one of the strategic goals within Vision 2030, as Saudi Arabia seeks to provide integrated financial services to all segments of society, including remote areas, youth, and women. Saudi banks play a pivotal role in achieving this goal by developing accessible financing products and support programs for small and medium enterprises.

During 2023 and 2024, Saudi banks, in collaboration with the Social Development Bank and government entities, launched financing programs specifically for entrepreneurs, start-ups, and small enterprises, offering flexible loan terms and reduced interest rates on certain products. Banks have also expanded their partnerships with the government sector to activate the electronic disbursement of government accounts, contributing to the increased spread of digital banking services.

This approach has led to a rise in the percentage of loans granted to small and medium enterprises and an increase in the number of bank accounts opened, which has reflected in tangible growth in non-oil GDP. These programs have also contributed to supporting employment, reducing unemployment, and stimulating innovation in promising sectors such as technology, tourism, and the green economy.

Saudi banks continuously strive to develop more flexible risk assessment models that allow financing a broader range of start-ups while adhering to compliance and transparency standards. Financial inclusion emerges as a fundamental element in driving sustainable development and achieving the economic diversification goals that the Kingdom aspires to in the near future.

The Saudi banking sector is witnessing an increasing shift towards sustainable financing and social responsibility, in line with global trends towards a green economy and achieving sustainable development goals. In recent years, Saudi banks have launched initiatives to finance environmentally friendly projects, such as supporting renewable energy in housing and industry, and financing projects with positive social impacts.

Some major banks allocate part of their financing portfolios to low-carbon loans and provide incentives for projects that adhere to environmental sustainability standards. They also implement responsible financing policies that consider the environmental and social impact assessments of funded activities and commit to disclosing their policies in annual governance and sustainability reports.

In terms of social responsibility, banks invest in community support programs, such as training and employment for youth, supporting education, financing health initiatives, and promoting entrepreneurship. They also commit to localization programs and developing national competencies, setting strict standards for transparency and corporate governance.

These initiatives reflect the commitment of the Saudi banking sector to its role as a driver of sustainable development and a supporter of the state's efforts in combating climate change and achieving social justice. They also enhance the attractiveness of banks to international investors who increasingly value governance practices and environmental and social responsibility in their investment decisions.

The Saudi banking sector looks forward to a promising future, driven by the accelerating pace of digital transformation, expansion in developmental projects, and increasing market attractiveness for foreign investments. Independent financial institutions' analyses indicate that the sector will continue to grow at moderate to high rates during 2025 and beyond, supported by Vision 2030 initiatives and the development of new sectors such as tourism, entertainment, and technology.

The opening of new digital banks and the expansion of financial technology services are expected to broaden the customer base and increase demand for digital banking products. Additionally, major projects like NEOM and Qiddiya will drive demand for long-term financing, enhancing banks' roles in stimulating economic growth.

However, the sector faces increasing challenges, primarily the intense competition with the entry of FinTech companies and digital banks, the ongoing need for investment in cybersecurity, and pressures to maintain profitability amid expectations of declining interest rates. Oil price fluctuations and global financial market volatility remain sources of liquidity and credit risks.

Experts emphasize the importance of focusing on digital innovation, developing sustainable financial products, and enhancing financial inclusion to keep pace with future transformations. The Saudi banking sector remains in a strong position to capitalize on new opportunities, provided it continues to develop technological capabilities and manage risks effectively while adhering to global regulatory standards.