meed-logo

line1 line2 line3
SIGN IN / REGISTER

Saudi banks track more modest growth path

15 September 2023

MEED's October 2023 special report on Saudi Arabia also includes: 

> Gigaproject activity enters full swing
> Infrastructure projects support Riyadh’s logistics ambitions
> Aramco focuses on upstream capacity building
> Saudi chemical and downstream projects in motion
> Riyadh rides power projects surge
> Jeddah developer restarts world’s tallest tower

 

Surging oil prices may have imbued the kingdom with a renewed sense of economic purpose, but the situation for banks is more complicated.

Economic conditions – notably the higher interest rate climate – have made life more challenging for lenders. They have been acquainting themselves with normality in 2023, after two post-Covid years in which the increase in profit yields averaged 30 per cent.

This year, Saudi bank metrics are solid rather than spectacular. Second-quarter net profits for the country’s 10 listed banks declined by 0.3 per cent in quarter-on-quarter terms to SR17.4bn ($4.64bn), according to figures from Alvarez & Marsal.

Fitch Ratings expects average sector financing growth to slow this year, although remaining above the GCC average of a forecast 5-6 per cent.

According to Junaid Ansari, head of Investment Strategy & Research at Kamco Invest, Saudi Arabia still recorded the strongest growth in outstanding credit facilities during the second quarter of 2023 at 2.5 per cent in quarter-on-quarter terms, while growth in Kuwait, Qatar, Bahrain and Oman was below 1 per cent.

Growth drivers

Aggregate credit facilities in Saudi Arabia grew 5.2 per cent on the start of the year to reach SR2.5tn ($670bn).

“Real estate was the biggest sector in terms of total lending in Saudi Arabia, accounting for 30 per cent of total bank credit facilities and 61 per cent of personal facilities during the second quarter,” says Ansari, citing Saudi central bank data from Bloomberg. 

“Lending growth at Saudi banks is still high, albeit decreasing,” says Anton Lopatin, senior director at Fitch Ratings.

“Fitch is forecasting it to be 12 per cent for the whole year 2023, compared to 14 per cent last year. This is partially because mortgage financing affordability has decreased due to higher interest rates and also state subsidies have been tightened.”

Strong demand for mortgage financing, underpinned by a state subsidy programme, has supported the financing growth of Saudi banks in recent years, says Fitch.

Mortgage financing reached SR567bn ($151bn) at the end of the first quarter of 2023, with a compound average growth rate of 35 per cent over the past five years.

But Fitch sees financing growth moderating in Saudi Arabia.

“In the first six months of this year, deposit growth was above lending growth and that wasn’t the case in 2022,” says Lopatin, who points out that if banks’ funding base is growing faster than financing, that reduces pressure on liquidity.

Liquidity levels

Broadly speaking, liquidity is still healthy in Saudi Arabia. Low-cost current account and savings account (Casa) deposits in Saudi Arabia are still among the highest in the GCC, and there is a strong cash-rich government behind the banks in case of need.

After some liquidity tightening in 2022, the Central Bank (Sama) placed SR50bn ($13.3bn) of deposits in the banking sector to reduce the pressure.

“This is a Saudi-specific issue, reflecting that banks’ financing books are growing faster than deposits, and that is putting pressure on liquidity,” says Lopatin.

Casa deposits remain high in the kingdom, even though rising interest rates have led some customers to shift into term deposits. In the first quarter of 2023, Casa deposits still accounted for 56 per cent of total deposits, whereas two years ago the figure was 65 per cent.

“One reason for this [9 per cent decline] is the higher interest rates, but it’s also because banks have been competing for funding to support their growth. There is a huge increase in the cost of funding, but the margin is still very healthy, and the average net interest margin for the first quarter was 3.2 per cent,” says Lopatin.

Despite the higher cost of borrowing – and the attendant risk that this could force clients to default on loans – this should be manageable for most lenders.

“We believe that with adequate controls and policies, asset quality is not a concern at present for the Saudi banking sector,” says Kamco’s Ansari.

“The cost of risk for the sector has been consistently declining over the last quarters and stood at 44 bps, one of the lowest over the last several quarters. This also remains well below the GCC average of 66 bps.”

Loan health

Another source of comfort for Saudi banks is that the higher interest rates are applied to new loans while older loans remain at pre-decided fixed rates.

As a result, non-performing loans (NPLs) are not expected to see any steep increase in the coming quarters – especially, notes Ansari, in light of expectations of rate cuts from next year.

“In the first quarter of 2023, the average NPL ratio was stable at around 2 per cent, and the cost of risk was about 50 bps, which is rather low,” says Lopatin.

In construction and real estate, this could become an issue if higher interest rates result in higher borrowing costs for these companies.

“Not all of them operate with very healthy margins. Thus, their debt service capability will deteriorate. But as of now, we do not see significant upticks in cost of risk or sector average NPL ratios,” says Lopatin.

If Saudi banks are forced to reduce their exposure to real estate, there should be other opportunities for them to grow loan books – not least the Vision 2030-linked series of gigaprojects looking for support. Some of the Saudi banks whose balance sheets have expanded following mergers are now better placed to fund infrastructure projects.

According to the IMF, while mortgage growth has recently moderated, demand for project-related and consumer loans is expected to remain strong, helping offset the impact on profitability from rising funding costs linked to higher policy rates.

This may take a while to materialise. “As of now, we see only moderate financing for companies participating in the execution of the new gigaprojects in Saudi Arabia, but over the longer term, this will support banks’ lending growth,” says Lopatin.

There are other benefits to supporting these projects, not least with the government being the ultimate guarantor, which is positive from an asset quality perspective. 

With a strengthening oil price expected to underpin a Saudi economic renaissance, there should be many more opportunities for growth-oriented Saudi banks to get their teeth into.

https://image.digitalinsightresearch.in/uploads/NewsArticle/11139548/main.gif
James Gavin

Register for MEED's guest program now to access this article.

Click here to register
Exclusive from Meed
Related Articles
  • Kuwait appoints KPMG for ports strategic plan

    4 November 2026

    Register for MEED’s 14-day trial access 

    Kuwait Ports Authority (KPA) has appointed the local office of UK-headquartered KPMG to develop its ports strategic plan, which aims to improve the competitiveness, connectivity and performance of Kuwait’s commercial ports.

    KPMG will act as lead consultant on the strategic consultancy engagement, with Netherlands-based Haskoning Nederland and local engineering firm Dar Gulf Consult providing engineering consultancy support.

    KPMG will consolidate the three consultants’ work into a single strategic plan. It will lead the market, commercial and organisational analysis, as well as develop and implement the strategy.

    The scope is split into two workstreams. The first covers strategy development, planning and an implementation framework, including an assessment of KPA’s current market position and performance.

    The resulting strategic options and roadmap will be developed into detailed functional plans, supported by key performance indicators, a risk framework and a monitoring plan.

    Under the second workstream, KPMG will set up and lead a strategic technical support office for 36 months. The office will provide KPA with strategic oversight, technical advisory services and integrated project management support.

    KPA operates Kuwait’s three main commercial ports: Shuwaikh Port, Shuaiba Port and Doha Port.

    In line with the New Kuwait Vision 2035 development strategy, KPA is transitioning its operations into high-efficiency smart ports by investing heavily in automated machinery, deeper navigational channels and significant berth capacity expansions.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/21106611/main.jpg
    Yasir Iqbal
  • Combined Group signs Kuwait upstream contract

    4 November 2026

    Register for MEED’s 14-day trial access 

    Kuwait-headquartered Combined Group Contracting Company has signed a contract to repair and revamp production facilities in West Kuwait, according to a company statement.

    State-owned upstream operator Kuwait Oil Company (KOC) awarded the contract, valued at KD9.7m ($31.4m).

    The contract has a five-year term.

    KOC issued the invitation to bid on 5 October 2025. The initial bid deadline was 4 January 2026, and a pre-tender meeting was scheduled for 4 November 2025.

    The contract award to Combined Group was approved on 13 September 2026.

    Kuwait’s oil and gas sector is currently in the midst of a major crisis, as disruptions to shipping through the Strait of Hormuz have dramatically reduced exported crude oil volumes.

    The disruptions are the result of a regional war that started on 28 February when the US and Israel attacked Iran.

    The disruptions to shipping in the Strait of Hormuz are also creating significant challenges for oil and gas construction projects, which normally import equipment and materials through the waterway.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/21120792/main.png
    Wil Crisp
  • Qiddiya seeks interest for water infrastructure packages

    4 November 2026

    Register for MEED’s 14-day trial access 

    Qiddiya Investment Company (QIC) has issued an expression of interest for two water infrastructure packages at Qiddiya City, southwest of Riyadh.

    According to a source, the first package covers a wastewater treatment plant with a capacity of 60,000 cubic metres a day (cm/d).

    The second package involves a wastewater treatment plant with a capacity of 9,000 cm/d. It will also include a “sizeable” reverse osmosis (RO) facility, a source close to the project told MEED.

    The deadline for submissions of interest is 8 November.

    The infrastructure package will cater to Saudi Arabia’s 360-square-kilometre Qiddiya entertainment city.

    QIC, which is owned by Saudi Arabia’s Public Investment Fund (PIF), is overseeing the development of Qiddiya City, including its supporting utilities infrastructure.

    In October 2024, MEED reported exclusively that QIC planned to tender its utilities packages individually under an engineering, procurement and construction model.

    QIC had previously planned to procure the infrastructure through a public-private partnership (PPP). However, it cancelled this approach despite receiving two bids for a multi-utility package in 2020.

    The original utilities package covered power generation, water desalination, sewage treatment and water transmission networks.

    In September 2023, QIC signed infrastructure contracts worth SR2.29bn ($611m) with a joint venture of Saudi Real Estate Infrastructure Company (Binyah) and InfraRoad Contracting.

    The contracts covered a wider infrastructure package at Qiddiya’s Resort Core, including roads, utility networks, water storage facilities and pumping stations, as well as the construction of a sewage treatment plant (STP).

    Two other major PIF-backed developments, the Red Sea project and Amaala, have each awarded multi-utility packages using a PPP model, while contractors are preparing to bid for two separate wastewater treatment plants for Oxagon, Neom’s industrial cluster.

    In September, the utilities system serving Saudi Arabia’s Red Sea tourism destination reached commercial operation, marking the start of a 25-year concession for one of the world’s largest integrated off-grid utilities projects.

    The project, known as the Marafiq Red Sea Project or Red Sea Utilities Multi-Utilities Project, includes three seawater RO plants, an STP, a waste management centre and 32,500 refrigeration tonnes of district cooling capacity.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/21111446/main.jpg
    Mark Dowdall
  • Riyadh plans multibillion northern roads network overhaul

    4 November 2026

    Register for MEED’s 14-day trial access 

    Saudi Arabia’s Royal Commission for Riyadh City (RCRC) is preparing to implement a 189-kilometre (km) programme of road upgrades and extensions in the north of the capital as part of a comprehensive restructuring of the capital’s northern transport infrastructure.

    The programme comprises 19 road projects and 33 interchanges serving the airport and 16 surrounding developments, including the Expo 2030 site, Roshn’s Sedra and Plot 1 communities and King Salman Stadium.

    Once complete, the upgraded network will have the capacity for 4.2 million daily trips.

    Fifteen of the links, totalling 162km, will be funded from the Riyadh City Strategy budget and procured across three waves and five packages.

    The remaining four links, covering 27km of roads within and around the airport campus, will be developed by King Salman International Airport (KSIA).

    Wave one

    Wave one is the most immediate phase, covering seven links totalling 49km around the airport terminals, Expo 2030 and Roshn’s developments. 

    Fast-tracked for design completion in August 2026, Wave 1 comprises critical primary conduits split across two packages: 

    Package 1: Covers 11km, comprising an initial 8km stretch of Sheikh Jaber Al-Ahmad Al-Sabah Road and the first extension phase of King Salman Road.

    RCRC has already begun implementing the Sheikh Jaber Al-Ahmad Al-Sabah Road scheme, awarding multimillion-dollar contracts for the project this year.

    The centrepiece of this wave is the extension of King Salman Road, which will be realigned south along the boundary between KSIA and Roshn.

    The new road will have six main lanes and three service-road lanes in each direction, with three full interchanges where Airport Road, a Roshn Sedra link and Sheikh Jaber Road cross it on bridges.

    The interchanges will also give separate access to the airport support facilities and terminals, and are each forecast to handle 300,000-400,000 vehicles a day by 2040.

    Sheikh Jaber Al-Ahmad Al-Sabah Road will be upgraded along an 8km section and extended by a further 5km. Three grade-separated T-intersections will provide access to Roshn Sedra.

    The existing 6km section of King Salman Road will be widened to six main lanes in each direction, with tunnels beneath it at the Prince Saud Bin Jalawi interchange and between Expo 2030 and Roshn Plot 1.

    Package 2: Covers 28km of core alignment updates across King Salman Road, the Expo South link, Airport Road, Prince Badr Bin Abdulmohsen Road and Anas Bin Malik Road.

    A new 6km road south of the Expo site will extend Prince Saud Bin Jalawi Road through three grade-separated junctions, relieving King Salman Road of Expo and Roshn traffic.

    The 8km Airport Road upgrade will add five main lanes and four service-road lanes in each direction, an underpass interchange at Expo Road, a bridge linking Expo with Roshn Sedra and new elevated ramps serving Princess Nourah Bint Abdulrahman University.

    Prince Badr Bin Abdulmohsen Bin Abdulaziz Road will be widened from three to four lanes in each direction for 5km, with an underpass to King Salman Stadium.

    A tunnel-and-bridge junction will carry it beneath the upgraded 3km Anas Bin Malik Road.

    Wave one also includes a main bridge over Riyadh Metro Line 4.

    Wave two

    Wave two comprises two further packages totalling 72km that extend the network west and south of the airport.

    Package 3: Covers 38km and includes the 33km upgrade of Al-Janadriyah Road, the longest single link in the programme, together with the 5km western section of Mohammed Bin Faraj Road. Its design submission is due in November 2026.

    Package 4: Covers 34km and comprises the extension of King Salman Road to Al-Janadriyah Road, the 10km upgrade of the Airport Extension Road serving the airport support functions and the 16km upgrade of Prince Saud Bin Abdullah Bin Jalawi Road.

    Design is scheduled for submission in March 2027.

    Wave three

    Wave three is a single 52km package covering the outer northern and eastern corridors. It comprises the 11km upgrade of Al-Thumamah Road, the 17km upgrade of Khuzam Road and the 19km extension of Jabal Azid Road, with design due for submission in August 2027.

    Alongside the RCRC-led schemes, KSIA will deliver four links totalling 27km on its own campus. These are the 10km upgrade of the Airport Extension Road adjacent to the terminals, a 6km upgrade of Mohammed Bin Faraj Road, a 5km road to the cargo and aviation services area and a 6km road to the Iconic Terminal.

    All three waves are scheduled to reach tender by 2028.

    Programme rationale

    Designed by Lebanon-headquartered engineering firm Dar Al-Handasah, Taiwan’s Wiecon Consulting Engineers and Germany’s Bodeker, the programme responds to the concentration of Riyadh’s flagship schemes on the city’s northern edge.

    Riyadh is planning major developments in the north, with most due for completion by 2030. Daily trips in the area are forecast to rise from about 775,000 today to 1.7 million by 2030 and 3.7 million by 2050.

    Roshn’s projects account for 37% of that demand, with Roshn Sedra alone generating more than 520,000 daily trips by 2030.

    The sequencing is driven by Riyadh’s event timetable. Wave one targets the links that unlock KSIA’s new terminals, the Expo 2030 site and King Salman Stadium, a venue for the 2034 Fifa World Cup.

    The later waves then build capacity for the housing, logistics and mixed-use districts expected to drive traffic growth after 2030, sustaining a pipeline of road contracts in the capital well into the next decade.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/21109126/main.jpg
    Yasir Iqbal
  • Aramco Q3 profit rises 9% despite attacks on facilities

    3 November 2026

    Register for MEED’s 14-day trial access 

    Saudi Aramco reported a 9% year-on-year increase in adjusted net income to $31.2bn in the third quarter of 2026, supported by stronger financial performance across its businesses, particularly downstream operations, and despite persistent attacks by the Yemen-based Houthi rebels on its facilities across the kingdom.

    The company’s revenue and other income from sales reached $140.492bn in Q3 2026, up from $111.509bn in the same period last year. 

    Downstream adjusted earnings before interest and taxes (ebit) increased by 234% year-on-year, reflecting stronger refining margins.

    Cash flow from operating activities increased to $38.7bn in Q3, compared to $36.1bn a year earlier, while free cash flow rose to $28.2bn from $23.6bn over the same period.

    The company maintained a gearing ratio of 5.5% at the end of the first nine months of the year, compared to 6.2% at the end of the first half of the year.

    Return on average capital employed in Q3 remained the same as in the previous quarter at 22.1%.

    Aramco’s capital expenditure in Q3 2026 declined to $10.52bn from $12.55bn in the same period last year, while capex in the first nine months of the year stood at $35.78bn.

    Commenting on the Q3 financial results, Aramco’s president and CEO, Amin H Nasser, said: “Geopolitical uncertainty and attacks on key energy facilities continued to amplify the global energy supply crisis in the third quarter of 2026, with serious implications for global energy security.

    “Despite challenges, the unwavering dedication of our workforce, our operational excellence, the flexibility of our system and the strength of a supply network built over decades enabled us to continue delivering reliably to our customers through this extraordinary period.

    “We continue to explore additional overseas storage capacity and alternative export routes to further strengthen our global supply network, and our robust operational and financial performance during this volatile period demonstrates the value of our resilience.

    “Backed by our strong balance sheet, we remain focused on the disciplined execution of priority projects and on leveraging advanced technologies to enhance performance and unlock new opportunities. This is how we will continue to meet the world’s evolving energy needs and deliver value for our shareholders and customers.”

    ALSO READ: Sabic swings back to profit in Q3 with $224m net income

    https://image.digitalinsightresearch.in/uploads/NewsArticle/21121169/main.jpg
    Indrajit Sen