Saudi Banks: Transformations, Performance, and Opportunities in the Saudi

The Saudi banking sector is subject to strict supervision and regulation by the Saudi Central Bank, known as the Saudi Arabian Monetary Authority (SAMA). SAMA plays a crucial role in shaping monetary policies, determining capital and liquidity requirements, and ensuring the application of international governance and risk management standards. Under local and international regulations (such as Basel III), SAMA mandates that all banks maintain a capital adequacy ratio of at least 8%, but most large Saudi banks have significantly exceeded this threshold, with capital adequacy ratios reaching 17-18% in 2024. The authority also imposes strict controls on credit and operational risk management, requiring banks to set aside provisions to address non-performing loans, which remained at low levels (around 2% of total credit by the end of 2024).

SAMA closely monitors liquidity ratios among banks, with the loan-to-deposit ratio reaching approximately 80% in 2024, ensuring sufficient flexibility to continue lending operations without exposing the system to liquidity risks. The authority also enforces comprehensive governance rules that include internal control, financial disclosure, and periodic audits. In response to global changes, such as rising U.S. interest rates and inflationary challenges, SAMA adjusts local interest rates to align with changes and maintain the stability of the Saudi riyal, which is pegged to the dollar.

Additionally, SAMA supports banking and digital innovation by issuing licenses for new digital banks and encouraging the adoption of modern fintech. The authority also ensures the protection of customer deposits through a deposit insurance system that covers up to 100,000 riyals per client. All these measures have made the Saudi banking sector one of the most stable in the region, enabling local banks to effectively withstand economic shocks and global fluctuations.

The Saudi banking sector is divided into three main types: traditional commercial banks, Islamic banks, and specialized banks. Each type has its regulatory and product characteristics that allow it to play a distinct role in the financial system.

Traditional commercial banks, such as the Saudi British Bank (SABB), Riyad Bank, National Commercial Bank, and Arab National Bank, rely on interest-based financial instruments and offer comprehensive services including lending, account management, credit card issuance, and financing large projects. These banks hold a significant market share and compete vigorously in financing major corporations and individuals.

Islamic banks, such as Al Rajhi Bank, Alinma Bank, Bank Albilad, and Bank Aljazira, adhere to Islamic law in all their transactions, avoiding interest and using Islamic financing methods such as Murabaha, Musharaka, and Sukuk. These banks are attractive to a wide range of customers seeking financial solutions aligned with Islamic values and play a key role in developing Islamic investment products.

Additionally, there are specialized banks such as the Agricultural Credit Bank, Real Estate Bank, and Industrial Development Bank, which focus on financing specific sectors such as agriculture, housing, and industry. These banks typically do not compete directly in traditional banking services for individuals or corporations but concentrate on supporting government development plans and financing specific projects. All these banks, whether traditional, Islamic, or specialized, are subject to strict oversight from SAMA and adhere to financial disclosure and asset quality standards, contributing to high levels of trust among clients and investors.

The financial indicators of Saudi banks exhibited strong performance in 2024 and 2025, driven by asset growth, rising deposits, and increased lending, alongside improved profitability and asset quality levels. According to data from the Saudi Arabian Monetary Authority, the total assets of commercial banks surpassed 4 trillion riyals by the end of 2024, with an annual growth rate exceeding 5%. This growth resulted from the expansion of financing for real estate, industrial, and consumer projects, in line with government programs to enhance property ownership and develop productive sectors.

Banking sector deposits reached approximately 2.8 trillion riyals, while the volume of loans exceeded 2.2 trillion riyals, achieving a loan-to-deposit ratio of around 80%. This ratio represents a healthy balance between liquidity and lending. As for net profits, the banking sector recorded over 30 billion riyals in the first half of 2024, with expectations that total profits for 2024 will reach around 65-70 billion riyals, thanks to rising net interest margins and increased demand for loans.

In terms of asset quality, the non-performing loan (NPL) ratio remained low at about 2%, indicating strong risk management and sector stability. The capital adequacy ratio (CET1) in most major banks was around 17-18%, significantly exceeding the minimum required by SAMA. Additionally, liquidity coverage ratios exceeded 100% in major banks, reflecting high flexibility and the ability to withstand any sudden deposit withdrawals. These combined financial indicators affirm the robustness of the Saudi banking sector and its capacity to keep pace with economic growth and meet market needs with a high level of stability.

Saudi banks play a pivotal role in achieving the goals of the Kingdom's Vision 2030, which focuses on diversifying the national economy away from oil dependence and enhancing non-oil sectors such as industry, tourism, technology, and entertainment. By providing the necessary financing for government and private projects, banks contribute to funding major initiatives like the "NEOM" city, "Qiddiya," and infrastructure for transport and renewable energy.

In 2024, the financing of small and medium-sized enterprises (SMEs) by Saudi banks rose to approximately 200 billion riyals, in response to government directives to stimulate entrepreneurship and support startups. Banks also expanded housing financing through programs like "subsidized financing," leading to an increase in the homeownership rate among citizens. Furthermore, banks contributed to the issuance of sukuk and government bonds to support the state budget and finance budget deficits, participating in issuances worth billions of riyals during 2024-2025.

Banks also stimulate local consumption by offering consumer loans and diverse banking products for individuals, supporting domestic market activity. They participate in financing major deals for national companies and the Public Investment Fund, providing advanced banking solutions that attract foreign direct investments. Through these multiple roles, Saudi banks are considered one of the most important drivers of economic development in the Kingdom and a key partner in implementing national strategies to achieve sustainable development and the goals of Vision 2030.

The Saudi banking sector has witnessed unprecedented digital transformation in recent years, with banks investing heavily in developing digital infrastructure and providing integrated electronic banking services for individuals and businesses. The rate of banking app usage reached record levels by 2024, with most customers conducting their financial transactions through smartphones without the need to visit traditional branches. Banks have opened specialized electronic branches and formed partnerships with digital payment companies such as "Mada" and "STC Pay" to expedite electronic collections.

The expansion was not limited to daily banking services; banks also developed digital investment platforms that allow customers to manage and analyze their investment portfolios using artificial intelligence. Some banks began testing blockchain technologies to accelerate cross-border transaction settlements and improve cybersecurity levels. In 2025, new digital banks, such as "Afaq Digital Bank," received licenses from SAMA to provide fully digital banking services.

Innovation also included the development of new products such as digital accounts, electronic wallets, and smart expense management software. Some banks launched internal innovation labs to develop fintech solutions in collaboration with startups. These digital transformations have contributed to enhancing financial inclusion, enabling a wide range of community segments to open accounts and conduct transactions easily. The competition with fintech companies has also driven banks to innovate further and improve customer experience to keep pace with rapid changes in the global financial sector.

Saudi banks occupy a leading position in the Saudi stock market (Tadawul), with their shares being among the leading stocks with the largest weight in the overall market index. The list of banks listed on the market includes prominent names such as Al Rajhi Bank (1310), National Commercial Bank (1180), SABB (1090), Riyad Bank (1010), Bank Aljazira (4111), Alinma Bank (1150), Bank Albilad (1140), and Saudi Investment Bank (1091). These stocks are characterized by large trading volumes and high liquidity, making them a focal point for local and international investors.

In 2024, the share price of Al Rajhi Bank reached approximately 85 riyals, with a market capitalization exceeding 235 billion riyals, while the National Commercial Bank recorded a market capitalization exceeding 270 billion riyals and a share price of around 32 riyals. Most major banks achieved net profit growth rates ranging from 10-15% annually, supported by rising interest margins and increased demand for financing. The shares of these banks remain attractive to investors seeking regular income, with dividend payout ratios ranging between 3-4%, sometimes reaching up to 75% of annual net profits.

The movements in bank stock prices are influenced by several factors, including quarterly earnings results, changes in interest rates, and local and global economic developments (such as oil prices and U.S. monetary policy decisions). During periods of earnings announcements or bond issuances, banking stocks experience noticeable volatility, and bank stock movements often drive the overall index up or down. Furthermore, banks attract foreign investors, especially after improving the Kingdom's credit ratings and raising the foreign investment ceiling in the financial market.

Saudi banks play a pivotal role in financing major government and private projects and are a key partner in implementing the Kingdom's Vision 2030 programs by providing the necessary financing for infrastructure, smart cities, and industrial projects. In 2024, banks participated in financing massive projects such as "NEOM," "Qiddiya," and renewable energy projects, providing loans worth billions of riyals to support these national initiatives.

At the level of small and medium enterprises, the banking sector has seen significant expansion in lending to this vital sector. The total financing of banks for SMEs reached about 200 billion riyals in 2024, as part of initiatives to stimulate entrepreneurship and diversify the local economy. Banks offer tailored financing programs, such as working capital financing, expansion loans, and financing for modern equipment and technologies, with competitive terms and government-backed guarantees.

These efforts have contributed to increasing the number of small and medium enterprises operating in the Saudi market and enhancing their competitiveness and growth potential. Additionally, banks, in collaboration with government funds such as the Industrial Development Fund and the Social Development Fund, have launched joint programs to facilitate access to financing for entrepreneurs, providing technical support and financial consulting. These combined initiatives enhance the banking sector's contribution to economic development and support the growth of new sectors in line with the goals of Vision 2030.

Saudi banks are characterized by high credit quality and strong financial solvency, reflecting their ability to withstand economic shocks and protect the rights of depositors and investors. According to ratings from global credit agencies such as S&P and Fitch, Saudi banks have maintained advanced ratings due to high capital ratios and asset quality. In March 2025, S&P raised Saudi Arabia's credit rating to (A+ with a stable outlook), indicating the strength of the banking sector and its ability to absorb shocks.

The capital adequacy ratio in most major banks was around 17-18% by the end of 2024, compared to the minimum required by SAMA of 8%. The non-performing loan (NPL) ratio remained low at around 2%, with rising accounting coverage ratios for risks. These figures reflect the banks' ability to manage credit risks effectively and apply stringent precautionary policies.

In terms of liquidity, most banks recorded a liquidity coverage ratio (LCR) exceeding 100%, ensuring the ability to meet short-term obligations. The results of major banks in the first half of 2024 showed significant growth in net profits, enhancing the capital base of the sector. SAMA continuously monitors global developments and directs banks to strengthen their precautionary provisions to address any sudden market fluctuations. All these factors have made the Saudi banking sector one of the most stable in the region, making it a safe haven for both depositors and investors.

Despite the robustness of the Saudi banking sector, it faces a range of economic challenges and future risks that require cautious responses and flexible policies. Among the most prominent challenges is the impact of fluctuations in oil prices on the national economy, as a significant portion of government spending remains linked to oil revenues. In the event of a sharp decline in oil prices, economic growth may slow, and demand for credit may decrease, which would reflect on banks' profitability rates.

There are also challenges arising from global fluctuations in interest rates, as rising U.S. interest rates increase borrowing costs domestically. With interest rates stabilizing in 2024, banks have tended to raise deposit interest rates to maintain liquidity, which has somewhat affected profit margins. Additionally, the sector faces inflationary risks due to global pressures on commodity and service prices, which may impose additional pressures on asset quality.

On the other hand, competition with fintech companies is increasing, as they offer innovative digital alternatives for payment and lending services, prompting banks to accelerate their digital transformation and develop new products. Furthermore, ongoing regulatory adjustments, such as tightening disclosure standards or increasing loan provisions, pose challenges to operating costs. Lastly, geopolitical and regional risks remain influential factors on investor confidence and capital movements in the region. To address these challenges, Saudi banks continue to enhance their financial solvency, adopt advanced risk management policies, and diversify income sources to reduce reliance on traditional sectors.

The competitive environment in the Saudi banking sector is characterized by clear intensity, as local banks compete among themselves to attract customers and offer new products, while simultaneously facing increasing competition from fintech companies that have begun to penetrate the core banking services market. Internally, major banks such as Al Rajhi, National Commercial Bank, and SABB stand out in market share, benefiting from their massive financing capabilities and extensive branch networks. In contrast, banks like Alinma, Albilad, and Aljazira focus on providing Islamic banking services and specialized products to attract specific customer segments.

Fintech companies offer innovative solutions in electronic payments, rapid transfers, and smart wallets. Platforms such as "Tamara," "Tabby," and "STC Pay" have become competitors to banks in providing payment and installment services, benefiting from ease of use and integration with digital applications. To address this trend, Saudi banks have invested in developing their applications and launched partnerships with fintech companies to offer joint products that combine banking security with technological innovation.

On the external front, competition with foreign banks remains limited, as most international banks focus on providing corporate business services and financial consulting. However, some Saudi banks collaborate with international banks in sukuk and bond issuances and joint financing. Local banks are also striving to keep pace with global best practices in governance and risk management to achieve a sustainable competitive advantage in the face of rapid changes in the global financial sector.

Sukuk and bond issuances have become key tools that Saudi banks resort to in order to diversify their funding sources and strengthen their capital base. During 2024 and 2025, the Saudi financial market witnessed significant activity in the issuance of financing sukuk, with banks such as Bank Albilad and Al Rajhi Bank launching local issuances worth over 1.5 billion riyals each. Some major banks are also considering issuing international sukuk in dollars, benefiting from the positive environment in global markets and declining borrowing costs.

The proceeds from these issuances are used to finance expansion plans, support developmental projects, and improve capital adequacy ratios, in accordance with SAMA requirements and Basel III standards. Banks also participate in arranging and managing government sukuk and bond issuances, enhancing their role as a key driver of local and regional debt markets. Islamic sukuk are characterized by their compliance with Sharia law, attracting a wide range of investors seeking Islamic financing and investment solutions.

These issuances also inject additional liquidity into the financial system and provide investment alternatives for institutions and investment funds. Thanks to the strong credit ratings of Saudi banks, these sukuk and bonds enjoy high confidence from local and international investors. Banks continuously work on developing new financing products to increase the attractiveness of their shares and investment instruments, as part of their efforts to enhance financial sustainability and support long-term economic growth.

Financial inclusion holds a prominent place in the national strategy for the Saudi banking sector, as banks seek to expand their banking services to include all segments of society, including low-income individuals, entrepreneurs, and residents of rural areas. In recent years, there has been a significant increase in the percentage of individuals who own bank accounts, driven by the launch of digital accounts and the facilitation of account opening through smart applications without the need to visit branches.

Saudi banks offer a wide range of banking products and services such as current accounts, savings accounts, consumer financing, payment cards, and ATM services. They have also expanded to provide electronic payment services and smart wallets, making payment and financial transfer operations more secure and efficient. Some banks have launched initiatives to educate the community financially and provide guidance programs on money management and financial planning.

In support of lower-income groups, banks have collaborated with government development funds to launch affordable financing programs for families and individuals, in addition to educational and medical financing programs. They have also provided specialized banking services for people with disabilities and the elderly, through equipped branches and assistive technologies. These efforts have contributed to increasing financial inclusion rates and enhancing social and economic stability. Saudi banks continue to develop their digital channels and improve customer experience to reach a larger segment of the population and achieve sustainable development goals.

The performance of Saudi banks is influenced by a range of local and global economic indicators, where economic growth rates, oil prices, inflation rates, and monetary policies play a pivotal role in determining banking sector trends. In 2024, the Kingdom's GDP grew by 1.3%, with strong contributions from non-oil sectors, positively reflecting on deposit and loan activities in banks.

Saudi banks maintain good profit margins due to the stability of the Saudi riyal, which is pegged to the dollar, limiting exchange rate fluctuations. With rising interest rates in the first half of 2023, banks raised interest rates on deposits and loans, leading to increased profit margins, but interest rates soon stabilized in 2024 as inflationary pressures eased. Conversely, fluctuations in oil prices have a direct impact on government spending levels and liquidity in the economy, as the government works to compensate for any decline in oil revenues through issuing sukuk and bonds to banks.

Globally, Saudi banks closely monitor developments in the Chinese and European economies and prepare to face any potential slowdown in international trade or rise in global interest rates. Additionally, the improvement in the Kingdom's credit rating in 2025 has boosted international investors' confidence in the banking sector and opened the door to new foreign capital inflows. Through effective risk management and keeping pace with economic changes, Saudi banks remain capable of maintaining their financial stability and supporting the national economy.

The Saudi banking sector faces a future filled with opportunities and challenges, amid the ongoing implementation of the Kingdom's Vision 2030, the accelerating pace of digital transformation, and rising customer expectations. The coming years are expected to witness further expansion in digital banking services, with new digital banks entering the market and the adoption of artificial intelligence and blockchain technologies to improve operational efficiency and customer experience.

Saudi banks will continue their role in financing major projects, focusing on supporting emerging sectors such as renewable energy, technology, and tourism, thereby achieving the diversification of the national economy. Banks are also expected to expand partnerships with fintech companies to offer innovative financial products that meet the needs of the new generation of customers. Conversely, banks will face increasing challenges in maintaining profit margins amid rising competition and pressures to comply with international disclosure and governance standards.

SAMA's stringent regulatory oversight remains a key factor in ensuring sector stability, with expectations of continued strengthening of loan provisions and reserves to address any future fluctuations. Global economic transformations, such as developments in oil prices and international monetary policies, will play a pivotal role in determining banking sector trends. Overall, the Saudi banking sector represents a model of resilience and adaptability to changes and will continue to be a fundamental driver of economic growth and the achievement of sustainable development goals in the Kingdom.