Saudi Arabia’s banking sector showed notable resilience in 2024, buoyed by strong asset quality, improving efficiency, and disciplined credit management. This unwavering performance kept banks profitable despite rising funding costs, driven by intensified deposit competition and greater reliance on external borrowings. The assessment, derived from Alvarez & Marsal’s KSA Banking Pulse 2024 and corroborated by Fitch Ratings’ separate analysis, highlights how banks navigated cost structures, liquidity pressures, and earnings dynamics as the Kingdom advances its Vision 2030 diversification agenda. The findings underscore a banking system that remains a central pillar of economic transformation, financing mega-projects, corporate expansion, and capital market growth, while also expanding its footprint in debt markets and capital markets to support long-term lending.
Section 1: Comprehensive view of profitability and asset quality in 2024
Saudi banks maintained profitability in 2024 even as funding costs rose, a phenomenon explained by a combination of robust asset quality, prudent cost controls, and a strategic emphasis on fee-based income. The A&M KSA Banking Pulse 2024 highlights several pillars that supported earnings during a year of tightening liquidity and persistent competition for deposits. First, asset quality remained solid, with non-performing loan (NPL) ratios improving by 18 basis points to 1.1 percent. This improvement reflected more effective risk management practices and healthier loan portfolios across the sector. Second, loan loss coverage stood firm at 161 percent, creating a substantial buffer against potential defaults. Third, the overall cost of risk declined to 0.3 percent, signaling lower impairment charges and the continued high quality of new lending.
These improvements translated into tangible earnings growth. Lower impairment charges allowed banks to preserve and enhance profitability, even as interest margins faced compression. With a larger proportion of performing loans and reduced provisioning needs, banks could bolster their bottom lines despite margin pressures. The sector’s capacity to generate profits was underpinned by a combination of higher net interest income (NII) and rising non-interest income streams, including fees and commissions alongside other operating income. In 2024, net interest income rose by SR7.9 billion, contributing materially to overall earnings growth. Meanwhile, net fee and commission income increased by SR2.6 billion, and other operating income rose by SR1.6 billion, reflecting a diversified revenue mix beyond traditional interest-based earnings.
Although net interest income expanded, its growth pace moderated to 7.6 percent year-on-year in 2024, down from 11 percent in 2023. The deceleration is a direct reflection of funding costs climbing higher in a tightening liquidity environment, which weighed on net interest margins (NIMs) and constrained the ability to harvest gains from loan growth alone. Nevertheless, the sector was able to offset margin compression through efficiency gains and increased fee-based revenues, sustaining a robust earnings trajectory. The resilience of profitability in 2024 demonstrates how Saudi banks navigated a complex funding landscape while maintaining asset quality and risk discipline as the economy diversified under Vision 2030.
The broader context shows banks playing a central role in financing, with a focus on maintaining strong risk controls, prudent provisioning rules, and disciplined balance sheet management. This combination supported profitability even as banks expanded lending to support corporate investment and mega-projects. By maintaining a high-quality loan book and a prudent cost structure, banks were able to protect margins and earnings in an environment characterized by higher funding costs and intense competition for deposits. As Saudi Arabia accelerates its economic diversification, banks remain at the forefront of private-sector investment, and their profitability helps sustain capital markets activity and ongoing financing for strategic sectors.
In parallel, Saudi banks strengthened their leadership in capital markets and liquidity provision. Beyond traditional lending, banks contributed meaningfully to liquidity and investment activity within the Saudi market. Their stocks remained among the most actively traded on the Saudi Stock Exchange, driving market turnover and reinforcing banks’ role as market makers and liquidity providers. The banks’ expanding footprint in debt markets, via sukuk issuances and other instruments, has funded large-scale projects and supported the widening of the Kingdom’s sovereign and corporate issuance programs. These dynamics highlight how banks are more than lenders; they are instrumental participants in the broader capital markets ecosystem, contributing to liquidity, price discovery, and investor confidence.
The deposit-driven funding environment and the strong asset base also supported the sector’s resilience. Deposits rebounded later in the year, offsetting earlier declines, while the share of government-related entity (GRE) deposits among total sector deposits remained a notable dynamic. Fitch Ratings highlighted the GRE deposits’ impact on funding and liquidity, illustrating how government-related funding patterns influence bank balance sheets. Against this backdrop, banks continued to play a central role in capital markets liquidity, enabling sustained investment activity and broad-based economic development.
As the Kingdom’s diversification agenda progressed, the banking sector remained a critical driver of financing for infrastructure, corporate expansion, and capital market growth. Banks supported mega-projects and private sector investment, using a mix of traditional deposits and alternative funding sources to maintain lending momentum. By maintaining robust risk buffers, banks ensured they could absorb potential shocks and continue channeling capital toward high-impact sectors. The overall message from 2024 is clear: Saudi banks delivered steady profitability and strong asset quality under a challenging funding environment, reinforcing their central role in Vision 2030’s execution.
Section 2: Efficiency improvements underpinning earnings growth
Efficiency gains emerged as a pivotal driver of profitability in 2024, helping banks compensate for higher funding costs and liquidity pressures. Alvarez & Marsal highlighted a sharp improvement in the cost-to-income ratio, which declined by 63 basis points to 31.3 percent. This reduction signals a meaningful reduction in operating expenses relative to income, reflecting the sector’s ongoing efforts to optimize costs and improve operating efficiency. The driving forces behind this improvement include strategic digital transformation, automation, and stringent expense management aimed at delivering sustainable, long-term growth despite an evolving funding landscape.
The efficiency program is rooted in a multi-pronged approach. Banks pursued digital channels to streamline processes, automate routine tasks, and reduce manual error rates. This emphasis on digital transformation not only lowered operating costs but also enhanced the customer experience, enabling faster service delivery and improved cross-sell opportunities. In addition, automation supported better cost discipline in back-office and middle-office functions, reducing overhead costs and freeing up resources to invest in higher-margin activities. The net effect was a leaner cost structure that could withstand the upward pressure on funding costs while supporting revenue growth.
Cost optimization translated into stronger operating income. A 9.3 percent year-on-year rise in operating income outpaced the 7.1 percent growth in operating expenses, underscoring the discipline in cost control and revenue generation initiatives. The result was a significant uplift in profitability, culminating in a 13.5 percent increase in aggregate net income, which reached SR79.6 billion for the year. These gains were achieved despite the challenge of narrowing net interest margins due to higher funding costs, illustrating how efficiency gains can serve as a critical offset to margin compression.
Key contributors to annual earnings growth included a notable SR7.9 billion rise in net interest income, reflecting the net effect of rising loan volumes and the yield on new lending, even as funding costs rose. The SR2.6 billion increase in net fee and commission income and a SR1.6 billion rise in other operating income further diversified earnings, reducing reliance on net interest income alone. This diversified revenue mix underscores the sector’s ability to generate sustainable profits through multiple channels, including capital markets activities, advisory fees, and asset-management-related income.
The narrative for 2024 also emphasizes how efficiency gains supported profitability in the face of liquidity tightening. Even as banks navigated a slower growth in net interest income, the combination of higher non-interest income, disciplined cost management, and improved asset quality contributed to a resilient earnings profile. The efficiency drive strengthened margins and supported a healthier bottom line, enabling banks to maintain confidence in their growth trajectory.
Looking ahead, efficiency remains a strategic priority as banks prepare for ongoing liquidity constraints and potential shifts in monetary policy. The 2024 performance demonstrates that a strong cost-to-income framework, complemented by diversified income streams, can sustain profitability even when net interest margins experience compression. Banks will likely continue to invest in technology, process optimization, and digital customer experiences as core levers to achieve sustainable profitability in 2025 and beyond. The ongoing focus on efficiency, combined with prudent risk management, will be essential to maintaining earnings momentum as funding costs evolve with global and domestic liquidity conditions.
Section 3: Funding costs, liquidity pressures, and deposit dynamics
Funding costs rose in 2024, driven by both local liquidity constraints and global funding trends. This dynamic pressured banks’ margins as deposit growth lagged lending expansion, leading institutions to seek alternative funding sources to sustain lending activity. The A&M Pulse analysis highlights a few critical channels shaping the funding landscape. One pivotal factor is the concentration of GRE deposits, which account for roughly one-third of total sector deposits. This GRE dominance influenced how banks accessed liquidity and funded lending, particularly as central-bank-led tools and market-driven mechanisms evolved.
During the higher-rate cycle, GREs shifted funds into banks offering higher returns rather than remaining parked at the Saudi Central Bank (SAMA). The deployment of SAMA’s deposit auction platform accelerated this fund shifting, contributing to a notable reduction in GRE deposits at the central bank—from SR670 billion in 2023 to SR460 billion in early 2025. These movements underscore the sensitivity of GRE deposits to policy instruments and interest rate differentials, and they have meaningful implications for banks’ funding costs and liquidity management.
The funding landscape further evolved as rates began to decline. In the fourth quarter of 2024, Saudi banks experienced a rare deposit decline of SR27 billion, representing a 1 percent drop—the first such drop since 2019. Fitch Ratings attributes this outflow to seasonal budget and tax-related movements from GREs, illustrating how macro-financial cycles and government-related cash flows interact with bank funding dynamics. Despite this setback, deposits rebounded by SR40 billion in January, fully offsetting the Q4 decline and highlighting the sector’s resilience to short-term liquidity fluctuations. The rebound demonstrates the readiness of depositors to re-enter the funding pool when conditions stabilize or improve.
Even with deposit recoveries, growth in deposits remained slower than lending expansion. Lending grew robustly, rising 14.4 percent year-on-year in 2024, compared to a 7.9 percent rise in deposits. This growth dynamic pushed the loan-to-deposit ratio to 104.7 percent, surpassing the 100 percent threshold for the first time in recent years and signaling a more aggressive lending stance supported by alternate funding channels. Corporate lending emerged as the principal driver of this expansion, propelled by Vision 2030 mega-projects, ongoing infrastructure development, and broader private sector investments. The acceleration in loan growth, alongside slower deposit growth, compelled banks to diversify their funding sources, turning more toward sukuk issuances, external borrowings, and interbank lending to bridge the liquidity gap. While these instruments can be effective in sustaining lending momentum, they tend to carry higher costs than traditional deposits, contributing to elevated funding expenses.
The strategy to diversify funding sources has been critical in sustaining lending activity despite pressure on deposit funding. Banks increasingly relied on access to capital markets, including sukuk issuances, as well as interbank markets for short- and medium-term liquidity. External borrowings, while more expensive than deposits, provided the necessary liquidity to support credit expansion and project financing. This shift toward non-deposit funding is expected to persist as loan growth remains strong relative to deposit growth, underscoring the importance of a well-managed funding mix. The broader implication is that banks will need to balance the benefits of external funding against higher costs to maintain profitability margins. In the long run, a strategic funding mix that emphasizes durable access to capital markets and long-term debt instruments could help banks navigate the evolving liquidity landscape, sustain lending growth, and manage funding costs more effectively.
The funding environment’s complexity is also shaped by the interplay between monetary policy actions in the United States and their transmission through to Saudi Arabia via the riyal peg and local policy responses. The U.S. Federal Reserve’s 100 basis point rate cut in 2024 prompted SAMA to lower its repo rate to 5 percent, aligning with the currency peg and domestic policy objectives. However, the lag effect means funding costs remained elevated as deposits and debt issued during the peak rate environment continued to bear higher costs. Fitch’s outlook suggests that while there will be a continued emphasis on non-deposit funding, competition for liquidity remains intense, and margin compression is likely to persist. This implies banks will need to manage their funding mix carefully to sustain profitability while financing loan growth in a dynamic economic environment.
In 2025, Fitch projects that non-deposit funding will play an increasingly prominent role, with debt issuance expected to exceed $20 billion as banks seek to maintain lending momentum. The forecast recognizes that lower rates can stimulate loan growth but may not immediately translate into higher net interest margins due to ongoing liquidity constraints and the competitive pricing for deposits. The potential uplift in margins from rate cuts will depend on how effectively banks can optimize the balance between funding costs and loan yields, as well as their ability to grow non-interest income streams. The overall assessment suggests that the core challenge remains the balance between sustaining lending activity and managing higher funding costs amid a tighter liquidity environment.
The deposit landscape also reflects structural factors, including the central role of GRE deposits in the funding mix. While GRE inflows aided liquidity during periods of high rates, the transition to lower rates reduced the attractiveness of GRE deposits, contributing to the observed outflows in late 2024. The deposit auction mechanism aided reallocation of funds to higher-yielding opportunities but did not fully offset the liquidity pressures in the near term. The January rebound indicates that deposits are responsive to policy changes and macroeconomic conditions, but the broader trajectory remains sensitive to government cash flows, budget cycles, and tax-related movements. Banks will continue to monitor GRE dynamics closely as part of their liquidity planning, with a focus on maintaining a balanced and stable funding mix that can weather fluctuations in government-related cash flows.
In summary, 2024’s funding and liquidity story is defined by a nuanced balance: loans continue to grow well above deposit growth, GRE deposits influence liquidity conditions, and diversification into non-deposit funding remains a strategic necessity. The sector’s ability to sustain robust lending while managing higher funding costs demonstrates its resilience, but it also underscores the importance of disciplined funding strategy, prudent risk management, and proactive liquidity planning as 2025 unfolds.
Section 4: Monetary policy, outlook for margins, and profitability
Monetary policy developments in 2024 and their spillover effects on the Saudi banking sector shaped the profitability landscape. The U.S. Federal Reserve’s 100 basis point rate cut in 2024 influenced global financial conditions, prompting SAMA to adjust the Saudi repo rate downward to 5 percent to align with the riyal’s dollar peg. Even with this easing, funding costs remained elevated due to the lag effect—banks continued to carry higher-cost deposits and debt issued during the peak rate period. The combined effect of lower policy rates and legacy high-cost funding created a nuanced environment for banks, where rate cuts could stimulate loan growth but might not immediately translate into meaningful margin expansion.
Fitch Ratings provides a cautious, nuanced view on the margin trajectory. The agency notes that the improvements in net interest margins from rate cuts are expected to be limited in the near term. This is attributed to persistent tight liquidity conditions and ongoing competition for funding, which suppresses the extent to which pricing power can translate into higher net interest income. In this context, the easing of policy rates is a positive catalyst for demand and credit volumes, yet it is unlikely to fully reverse the squeeze on margins that arises from funding cost pressures and the structure of the balance sheet.
Looking ahead to 2025, Fitch anticipates that loan growth will continue to outpace deposits, reinforcing the reliance on non-deposit funding sources. The forecast suggests that banks will need to increase non-deposit funding, with debt issuance projected to exceed $20 billion. However, the competitive environment for liquidity and the potential dilution of current and savings account deposits could limit the gains from lower policy rates on net interest margins. Banks will thus need to carefully calibrate their funding mix to sustain profitability, balancing the lower-cost potential of deposits against the higher-cost but flexible nature of non-deposit funding instruments. The overarching implication is that margin recovery will likely be incremental, contingent on a combination of favorable deposit dynamics, continued efficiency improvements, and successful expansion of non-interest income streams.
The regulatory and macroeconomic backdrop remains supportive of Saudi banks’ profitability ambitions, but requires ongoing discipline. Market participants and policymakers recognize that the sector’s margin resilience will depend heavily on how banks navigate liquidity tightness, competition for funding, and the evolution of yields on a broad spectrum of funding instruments. The interplay between interest rate cycles, global capital market conditions, and domestic macro indicators will continue to shape the trajectory of profitability in 2025. Banks are expected to focus on optimizing funding strategies, expanding access to capital markets, and leveraging long-term debt instruments to fuel lending growth while maintaining cost efficiency. The net takeaway is that monetary policy will continue to influence banking performance, but the strongest drivers of profitability will be a well-balanced mix of cost discipline, revenue diversification, and strategic funding management.
Section 5: Vision 2030, capital markets, and the broader role of banks
Saudi banks occupy a central role in the Kingdom’s Vision 2030 framework, supporting a diversified economy through financing megaprojects, corporate expansion, and enhanced capital market activity. The A&M Pulse analysis underscores that banks are at the forefront of private-sector investment, leveraging their funding capabilities to catalyze large-scale development initiatives that align with Vision 2030’s aims. The sector’s influence extends beyond traditional lending into capital markets, where banks contribute significantly to liquidity and investment activity. Banking stocks remain among the most actively traded instruments on the Saudi Stock Exchange, helping drive turnover and provide essential price discovery dynamics that support investor confidence and market depth.
In addition to equity market participation, Saudi banks are expanding their footprint in the debt market, with sukuk issuances and other financial instruments increasingly funding large-scale projects. The diversification of funding sources supports broader liquidity in the system and provides borrowers with alternative financing channels that can adapt to shifting macro conditions. This expansion into debt markets also strengthens banks’ capability to support project finance, infrastructure development, and corporate acquisitions that are central to Vision 2030-driven growth. The integration of banks into both equity and debt markets enhances the Kingdom’s overall financial plumbing, fostering a more resilient financial system capable of sustaining long-term investment and economic transformation.
Within this framework, deposits and funding strategy remain critical to sustaining lending momentum and market activity. The deposit dynamics observed in 2024—rebound after a Q4 dip, the GRE deposit structure, and the evolving mix of funding—will influence banks’ capacity to support credit expansion while managing costs. The interdependence between funding markets and lending activity underscores the need for banks to optimize their capital structure, improve funding diversification, and leverage capital-market tools to secure liquidity at reasonable costs. As Vision 2030 continues to unfold, banks will be expected to play proactive roles in financing strategic sectors, including infrastructure, energy, and technology-driven initiatives that underpin long-term economic diversification.
The broader implications for the Saudi banking system are clear. A robust capital markets presence, coupled with a diversified funding strategy, positions banks to support continued investment in the real economy, while maintaining risk controls and profitability. The sector’s capacity to generate liquidity, support investment, and sustain market turnover underpins confidence in Vision 2030’s financial architecture. Banks’ involvement in sukuk issuance and other debt instruments will likely continue to grow, providing crucial funding channels for large-scale programs and public-private partnerships. This evolution will further entrench banks as fundamental enablers of transformation, reinforcing their role as trusted intermediaries that unlock capital for strategic projects and corporate growth across the Kingdom.
Beyond funding and liquidity advantages, banks contribute to the health of the capital markets by facilitating market activity and providing risk management solutions. Their participation strengthens the depth and resilience of financial markets, enabling investors to access diverse opportunities and improving price discovery across asset classes. The increased involvement in debt markets also broadens the spectrum of investment options for institutional and retail investors, contributing to capital formation and financial inclusion in the Kingdom. In this sense, the banking sector is not only a lender of capital but also a catalyst for market development, systemic resilience, and sustainable growth in line with Vision 2030’s objectives.
The 2024 performance, underpinned by asset quality, efficiency gains, and dynamic funding management, demonstrates the sector’s capacity to adapt and thrive in an evolving financial landscape. Banks have shown agility in navigating monetary policy shifts, liquidity pressures, and funding costs, while continuing to contribute to the Kingdom’s broader development goals. The ongoing collaboration among banks, regulators, investors, and policymakers will be essential to sustaining a healthy, dynamic financial system that underpins Vision 2030‘s long-term ambitions.
Section 6: Deposits, GREs, and the funding mix in context
Deposits remained a key focus area as banks balanced growth with liquidity considerations. The January 2025 rebound in deposits restored a portion of the funding cushion that had been eroded by late-2024 outflows. This rebound offset the fourth-quarter dip, reaffirming the deposits’ role as a stabilizing funding source even in the face of rising costs and shifting GRE dynamics. The structure of GRE deposits, which account for a significant share of sector near-term liquidity, continued to influence how banks access funding and manage liquidity risk. The GRE deposit pattern is shaped by government cash flows, seasonal budget cycles, and policy instruments such as deposit auctions.
The deposit dynamics are intertwined with lending growth, which exceeded deposit growth by a wide margin in 2024. With lending rising 14.4 percent year-on-year, while deposits grew 7.9 percent, banks faced a liquidity gap that required diversification into non-deposit funding channels. The 104.7 percent loan-to-deposit ratio signals a high utilization of available deposits to fund credit expansion. This ratio surpasses the 100 percent threshold for the first time in several years, reflecting a deliberate shift toward more aggressive lending. The high loan-to-deposit ratio underscores the importance of liquidity risk management and funding diversification to support continued credit growth.
Corporate lending remains the primary driver of the loan growth story, driven by Vision 2030 megaprojects, infrastructure development, and broad private-sector investment. The scale and complexity of corporate financing needs necessitate the use of sukuk issuances, external borrowings, and interbank facilities to bridge liquidity gaps. While these funding instruments enable banks to sustain lending momentum, they carry higher costs than traditional deposits, contributing to the overall rise in funding expenses. Banks must continuously optimize their funding mix to manage costs and preserve profitability while maintaining the ability to finance growth across the economy.
The shift toward non-deposit funding reinforces the strategic importance of deep, liquid capital markets for the Kingdom. Sukuk issuances and other debt instruments provide long-duration funding options that support high-capital, infrastructure-intensive projects. This trend helps diversify funding sources and reduces reliance on volatile deposit inflows. It also offers banks more flexibility to adjust their funding profiles in response to market conditions and policy changes. Strategic use of capital-market instruments can improve resilience, support sustainable lending growth, and contribute to the broader objective of a stable and diversified financial system.
Section 7: Credit quality, risk management, and defensive measures
Credit quality remained a central pillar of Saudi banks’ resilience in 2024. The NPL ratio improved to 1.1 percent, reflecting better risk management and healthier loan portfolios across the sector. The robust NPL performance indicates a higher-quality underwriting standard and effective monitoring processes that helped identify and mitigate potential credit deterioration early. The loan loss coverage ratio of 161 percent reinforced a robust buffer against defaults, providing a substantial safety net to absorb potential losses from stressed borrowers. The lower cost of risk at 0.3 percent further underscored the effectiveness of risk management practices and the improved quality of new lending.
The combination of strong asset quality and lower impairment charges allowed banks to protect profitability and maintain strong earnings momentum. A higher share of performing loans contributed to improved provisioning efficiency, enabling banks to allocate resources more effectively toward growth initiatives and strategic investments. This dynamic supports a more sustainable earnings outlook, even as margins compress due to higher funding costs and liquidity pressures.
Effective risk management extended beyond NPL metrics, incorporating robust provisioning practices, proactive credit monitoring, and disciplined credit-risk assessment frameworks. Banks implemented enhanced stress testing, scenario analysis, and ongoing portfolio reviews to identify concentration risks and exposures to sectors sensitive to macroeconomic shifts. The focus on risk discipline ensured that lending growth did not come at the expense of credit quality, reinforcing the sector’s resilience in a challenging funding environment.
The broader implication of robust credit quality is the protection of capital and earnings stability. A higher-quality loan book reduces the need for aggressive provisioning, allowing banks to retain profits and focus on growth strategies. This, in turn, supports investor confidence and enables more effective capital allocation across the sector. The emphasis on risk management also signals a proactive approach to addressing potential downturns, ensuring banks can navigate future cycles with greater confidence.
In addition to credit metrics, the sector’s risk profile is shaped by the evolving funding landscape. Higher funding costs and liquidity constraints increase the importance of efficient operations and revenue diversification to offset potential earnings pressures. Banks will continue to deploy robust risk-management capabilities to maintain prudent risk appetites while funding strategic investments that support Vision 2030. The combination of disciplined credit management, strong asset quality, and efficient operations positions Saudi banks to sustain resilience through 2025 and beyond.
Section 8: Strategic implications and the path forward for banks
The 2024 performance and the 2025 outlook present banks with a set of strategic implications to sustain profitability, maintain asset quality, and support the Kingdom’s development agenda. The first strategic implication is the continued emphasis on cost discipline coupled with efficiency improvements. The strengthened cost-to-income ratio demonstrates that banks can translate technology investments and process optimization into meaningful bottom-line gains, enabling them to offset higher funding costs. Banks are expected to continue investing in digital platforms, automation, and data analytics to drive efficiency, improve customer experiences, and unlock monetizable growth opportunities across retail, commercial, and corporate segments.
Second, funding diversification remains a critical strategic priority. The combination of elevated funding costs and a deposit growth gap calls for a balanced approach to funding, leveraging deposits where feasible while expanding access to non-deposit funding sources—including sukuk, external borrowings, and interbank facilities. The goal is to achieve a sustainable funding mix that can support increased lending while containing funding costs. Banks will need to strengthen capital-market capabilities, maintain strong relationships with investors, and optimize debt issuance timing to capitalize on favorable market conditions. The expected growth in non-deposit funding in 2025 will require robust execution capabilities, pricing strategies, and risk management practices to maintain profitability amid a changing funding landscape.
Third, the sector must sustain and deepen asset quality improvements. The improved NPL ratio and solid loan-loss coverage are foundational to ongoing profitability, especially as credit growth remains vigorous. Banks should continue to refine underwriting standards, strengthen risk governance, and invest in early-warning indicators and portfolio monitoring. Proactive credit management, including sector-aware risk assessment and targeted remedies for vulnerable exposures, will help preserve asset quality in a higher-rate environment and under evolving macroeconomic conditions. The emphasis on risk discipline will support resilience and investor confidence as lending volumes scale.
Fourth, the capital markets function will become even more important. Banks’ role in facilitating liquidity, enabling investment activity, and supporting debt issuance will be central to sustaining Vision 2030 funding needs. The ability to access capital markets efficiently, issue long-term debt, and manage liquidity risk effectively will determine how well banks can support infrastructure and private-sector investment. Enhancing market-making capabilities, expanding collateral management, and continuing to offer innovative funding solutions will be critical to maintain a robust financial ecosystem that can mobilize capital for growth.
Fifth, margins may face persistent pressures in the near term, but a combination of efficiency gains and revenue diversification can mitigate the impact. While rate cuts support loan growth, competition for funding and liquidity tightening will limit margin expansion. Banks should pursue a balanced strategy that leverages non-interest income streams—such as fees, advisory services, and asset management—to complement net interest income. This approach will help cushion profitability against ongoing margin compression and create a more resilient earnings profile.
Finally, the regulatory and macroeconomic environment will continue to shape banks’ strategies. The regulatory framework should support prudent risk-taking while enabling banks to innovate in product design, risk management, and capital-market activities. Policymakers and regulators will need to balance encouraging lending for growth and maintaining financial stability, ensuring that banks can support economic transformation without taking on excessive risk. Banks should stay aligned with Vision 2030’s objectives, maintaining a forward-looking stance on strategic investments, capital allocation, and risk governance.
Conclusion
Saudi banks navigated 2024 with notable resilience, underpinned by strong asset quality, disciplined risk management, and a strategic emphasis on efficiency and diversification of funding. Profitability remained robust despite higher funding costs, driven by a combination of steady loan growth, elevated net interest income, and expanding fee-based income. Asset quality remained a cornerstone, with NPLs improving and loan-loss coverage maintaining strong buffers. Efficiency gains translated into a lower cost-to-income ratio, supporting a solid earnings trajectory and a substantial rise in net income.
The funding landscape in 2024 highlighted both challenges and opportunities. The rise in funding costs, the GRE deposit dynamics, and the shift toward non-deposit funding reflected a more complex liquidity environment. However, deposits rebounded in early 2025, offsetting Q4 declines and reinforcing the sector’s liquidity resilience. The persistent gap between loan growth and deposit growth underscores the need for a carefully managed funding mix, leveraging sukuk issuances, external borrowings, and interbank funding to sustain lending momentum while controlling costs.
Looking ahead, the sector faces a nuanced path shaped by monetary policy, liquidity conditions, and the continued implementation of Vision 2030. Margin recovery is expected to be gradual, relying on efficiency gains and revenue diversification to offset funding-cost pressures. Banks are likely to deepen their capital-market activities and expand access to long-term funding to support lending growth and investment in infrastructure and private-sector initiatives. The overarching narrative remains that Saudi banks are integral enablers of the Kingdom’s transformation, delivering stability and growth while reinforcing the resilience of the financial system in an evolving global and domestic environment. As Vision 2030 continues to unfold, banks will remain key partners in financing the Kingdom’s strategic ambitions, sustaining liquidity, supporting market development, and driving inclusive economic progress.