Saudi Arabia: Saudi banks’ aggregate profit before zakat and tax reached SR8.24 billion ($2.2 billion) in July, marking a 7 percent increase compared to the same month last year.  

Latest data from the Saudi Central Bank, also known as SAMA, show that this robust monthly showing lifted cumulative profits for January to July to about SR59.24 billion, an 18 percent rise over the same period in 2024, highlighting the sector’s strong growth trajectory.    

Regionally, performance mirrors the broader Gulf Cooperation Council upswing. In its September report, Kamco Invest said GCC-listed banks’ net profit hit a record $16.2 billion in the second quarter, powered by broad-based revenue gains and a lower cost-to-income ratio that more than offset higher impairments, underscoring robust fundamentals and a healthy project pipeline across the region. 

In Saudi Arabia, lenders also operate with one of the GCC’s highest loan-to-deposit ratios, at 94.3 percent, reflecting credit demand that outpaces deposit growth.   

A major driver of Saudi banks’ earnings is soaring corporate lending, as the Kingdom’s lenders finance megaprojects and businesses aligned with Vision 2030’s diversification plan. Total outstanding bank credit hit SR3.2 trillion in July, up 15.21 percent year on year.   

Notably, business loans grew 22.5 percent to SR1.8 trillion, now comprising about 56.23 percent of total lending, up from roughly 53.46 percent a year ago.  

Such growth underscores Saudi banks’ critical role in propelling the Kingdom’s economic diversification, funding everything from giga-projects and infrastructure to housing and small businesses.  

Real estate has been a key beneficiary, buoyed by rising homeownership initiatives and megaprojects like NEOM, but other sectors are also expanding their borrowing.  

For instance, trade, utilities, manufacturing, and other sectors all saw healthy double-digit loan growth in SAMA’s latest figures.  

Elevated interest rates, higher margins  

Despite the rapid credit growth, Saudi banks have navigated a high-interest-rate environment that has prevailed globally. Borrowing costs remain elevated as the US Federal Reserve has yet to ease policy in 2025, following only modest reductions late in 2024.  

An August Reuters poll found 61 percent of economists expect a 25-basis-point cut on Sept. 17, taking the target range to 4.00–4.25 percent, while 42 percent expect no change. Over 60 percent foresee one or two cuts in 2025 overall.  

For Saudi banks, SAMA’s mirroring of elevated Fed policy has widened lending margins, lifting interest income.  

Crucially, demand for credit has stayed strong despite the costlier loans, a testament to the strength of Saudi Arabia’s economy and project pipeline. In other words, companies and consumers are continuing to borrow for expansion and housing, driven by confidence in economic prospects, even as interest rates hover at multi-year highs.  

Outlook: profitable growth and new financing avenues  

Going forward, industry forecasts point to sustained strong performance for Saudi banks. S&P Global Ratings expects lending growth of around 10 percent in 2025, mainly driven by corporate credit tied to Vision 2030 projects.  

It projects that banks will maintain stable profitability next year, as higher loan volumes are set to offset a modest dip in net interest margins once domestic rates begin to ease in tandem with the US.   

Meanwhile, Fitch Ratings echoes this optimism, forecasting that Saudi banks will “continue outpacing Gulf peers in 2025,” with sector financing rising about 12 percent on the back of sturdy corporate credit demand.  

Fitch and S&P both emphasize that earnings should remain solid even if interest margins narrow slightly, given the Kingdom’s robust non-oil growth and banks’ ample capital buffers.  

Banks are also innovating their funding strategies to support future growth. In August, the Saudi Real Estate Refinance Co., a state-owned entity, launched the Kingdom’s first residential mortgage-backed securities issuance, after receiving SAMA’s approval.  

This inaugural securitization packaged a portfolio of home loans into bonds, marking a “strategic step toward developing Saudi Arabia’s real estate finance market and enhancing its appeal to investors,” according to Majid Al-Hogail, minister of municipalities and housing and chairman of SRC’s board.  

The deal is expected to improve liquidity and risk management in the booming mortgage sector as banks currently hold more than $180 billion in home loans, by allowing lenders to refinance and sell off mortgages to investors  

Such moves will free up bank balance sheets and provide fresh capital for new lending, especially important as housing demand remains robust under Vision 2030’s goal of 70 percent homeownership.  

With healthy capitalization, at 19 percent capital adequacy, and prudent provisioning, Saudi banks appear well-positioned to sustain growth while absorbing risks.  

Potential challenges like tighter global liquidity or geopolitical risks are being watched, but so far, the Kingdom’s macroeconomic fundamentals and policy reforms have underpinned confidence in its banking system.