RIYADH: Saudi Arabia’s largest listed banks posted 3.9 percent deposit growth in the first quarter of 2026, boosting liquidity and reinforcing the sector’s resilience, a new analysis showed.
Customer deposits outpaced loan growth during the three months ended March, with aggregate net loans and advances rising 1.6 percent from the previous quarter, according to Alvarez & Marsal’s latest KSA Banking Pulse report, which tracks the Kingdom’s 10 largest listed banks.
The stronger deposit growth reduced the sector’s loan-to-deposit ratio by 2.4 percent quarter on quarter to 104.1 percent, reflecting improved liquidity despite a challenging global interest rate environment.
The sector’s resilience comes despite a complex global interest rate environment shaped by ongoing Middle East conflicts, elevated energy prices, and divergent monetary policies worldwide.
Sam Gidoomal, managing director and head of Middle East Financial Services at A&M, said: “This performance in the first quarter underscores the resilience of Saudi Arabia’s banking sector, supported by healthy loan growth, stable margins, and easing credit costs.”
He added: “Nevertheless, banks witnessed emerging pressures from weaker non-interest income generation, higher operating expenditure, and lower benchmark rates.”
According to the report, aggregate operating income declined 2.3 percent quarter on quarter to SR40.4 billion ($10.76 billion), primarily due to a 13.2 percent quarter-on-quarter drop in non-interest income, which more than offset the modest 1.1 percent quarter-on-quarter growth in net interest income.
A&M added that the operating efficiency of the Kingdom’s banking sector weakened in the first quarter, with the cost-to-income ratio rising to 30.1 percent due to higher expenses, including elevated technology investment spending.
The sector’s net interest margin held steady at 2.84 percent, supported by lower funding costs as the cost of funds declined to 3.2 percent.
Return on assets also remained stable at 2 percent, while return on equity moderated slightly to 14.7 percent.
Asset quality remained healthy, with a stable non-performing loans ratio of 0.9 percent and an improved cost of risk of 0.15 percent.
The coverage ratio also strengthened to 162.6 percent, underscoring prudent risk management and providing substantial provisioning buffers.
Looking ahead, A&M expects asset quality to remain healthy, although banks are likely to maintain sustainable provisioning buffers amid ongoing geopolitical uncertainty.
“Digital and AI adoption will remain a key focus, with banks leveraging automation and AI to improve efficiency, risk management, and customer engagement, while the impact on operating efficiency remains a key watchpoint,” the report said.
The report covers the 10 largest banks by asset size, which include Saudi National Bank, Al Rajhi Bank, and Riyad Bank, as well as Saudi Awwal Bank and Banque Saudi Fransi.
Other banks included in the analysis are Alinma Bank, Arab National Bank, and Saudi Investment Bank, alongside Bank Albilad and Bank Aljazira.
