Saudi banks’ Q2 results ‘historical’; higher loans weigh on liquidity: Analysts

The combined profits of Saudi banks rose by nearly 19% in H1 2025 to SAR 45.25 billion, compared to SAR 38.18 billion in the same period last year. The second-quarter profits alone grew by 18% to SAR 23 billion, from SAR 19.5 billion in Q2 2024, driven by profit growth across all banks, according to data from Argaam.

Speaking to Argaam, several industry experts said that the banks' quarterly clearly benefit from the surge in lending activity, despite growing funding challenges stemming from slower deposit growth. This dynamic has pushed banks to tap more debt instruments to meet their financing needs, while asset quality remained resilient.

Saad Al-Thaqfan, economist and a board member of the Saudi Economic Association (SEA)

Saad Al-Thaqfan, economist and a board member of the Saudi Economic Association (SEA), described the performance as historical and above expectations, noting that banks benefited from a nearly 16% increase in loan demand.

He told Argaam that asset quality remained steady, with credit provisions rising only slightly by around 5%, despite aggressive lending.

Joseph Dahrieh, Chief Market Strategist at Tickmill

Meanwhile, Joseph Dahrieh, Chief Market Strategist at Tickmill, said the banking sector demonstrated mixed performance in Q2 2025. He highlighted that loan portfolios continued to grow at a robust pace for major banks such as Riyad Bank (up 21.8%) and Al Rajhi Bank (up 19.3%), while other banks faced challenges on the deposit level, including Banque Saudi Fransi (BSF), which saw deposits falling by 6.9%.

Dahrieh added that the variance between strong loan growth and the difficulty of attracting deposits widened the funding gap for several banks, rendering access to debt markets increasingly essential.

He pointed out that sukuk and bond issuances have become a strategic option for banks to meet financing needs and support large-scale projects despite potential pressures on profit margins due to higher funding costs.

Widening funding gap weighs on liquidity

Commenting on liquidity levels, Al-Thaqfan explained that banks are experiencing weak liquidity conditions due to rising loan demand, driven by mega-projects and sustained individual demand.

He added that loan portfolio growth reached 15.8%, while deposit growth lagged at 6.3%, pushing the loan-to-deposit ratio (LDR) to 106%. This reflects sector-wide profitability pressures, prompting banks to issue more debt instruments and attract time deposits to meet the high lending demand.

Al-Thaqfan expects to see further sukuk and bond issuances in the coming period, especially given the expected double-digit loan growth. Such issuances are not only aimed at covering funding needs but also serve to meet regulatory compliance requirements, as mandated by the Saudi Central Bank (SAMA) and Basel III standards.

While these instruments may weigh on profit margins, banks are still capable of generating returns by reinvesting proceeds from debt instruments, helping to offset higher financing costs, he added.

Asset quality among the best globally; provisions remain under control

On asset quality, Dahrieh said that the banking sector’s overall indicators remain solid, with low non-performing loan (NPL) ratios and healthy coverage levels, which support banks' financial stability amid liquidity challenges.

On his part, Al-Thaqfan reinforced that asset quality remains excellent, attributing this to SAMA’s strong oversight and the resilience of the Saudi economy. He added that the sector's credit provisioning ratios are among the lowest globally.

Strong dividends despite profit margin pressure

Regarding future profit margins and dividend payouts, Al-Thaqfan said that margins are likely to face pressure in the coming periods, especially with continued debt issuance, but banks are expected to remain profitable, albeit at slower growth rates than in previous quarters.

He added that cash dividends are likely to continue rising, supported by strong earnings, noting that average dividend payouts in the banking sector exceed those of most listed companies and offer higher yields than interest rates.

Dahrieh also commented that divergence in banks’ ability to grow deposits will lead to clear differences in profit margins and generous dividend capacity across the sector. He further noted that the expected decline in interest rates over the coming months could stimulate lending, providing an additional tailwind to loan growth.