Saudi banks retain solid credit expansion buffer despite LDR gap: Analysts

Analysts to Argaam: The Saudi banking sector boasts robust levels of liquidity and solvency.

Analysts surveyed by Argaam said that the Saudi banking sector continues to boast strong liquidity and capital adequacy levels, backed by a robust local economy and the Saudi Vision 2030 projects.

The Saudi banking sector is operating within its regulatory framework, with all financial institutions maintaining loan-to-deposit ratios (LDRs) below the 90% maximum cap set by the Saudi Central Bank (SAMA), they added.

According to the analysts, this available buffer reflects banks' ability to expand lending. However, LDRs remain elevated compared with their long-term averages, making competition to attract deposits a strategic priority for most Saudi banks.

Meanwhile, Argaam’s data showed that all ten Saudi banks recorded LDRs below 85%. Saudi National Bank (SNB) led the sector in the Liquidity Coverage Ratio (LCR) at 285.1% and held the largest stock of high-quality liquid assets at SAR 164.9 billion, while Banque Saudi Fransi (BSF) posted the highest Net Stable Funding Ratio (NSFR) at 126%.

Competition for deposits and rising funding costs present key challenges

Ibrahim Al-Hindi, a financial markets analyst

Ibrahim Al-Hindi, a financial markets analyst, said that the Saudi banking sector still enjoys strong levels of liquidity and capital adequacy despite continued credit growth outpacing deposit growth, creating increasing challenges for banks in managing liquidity and preserving profitability in the years ahead.

“Saudi banks continue to leverage the economic momentum witnessed in the Kingdom and the Saudi Vision 2030-related projects, which support demand for financing and banking services. The current operating environment remains favorable for the sector despite certain challenges related to interest rates and liquidity,” he added.

Al-Hindi also explained that banking finance growth continues to outpace deposit growth, driven by major government projects and the expansion of economic and investment activities, leading to greater competition among banks to attract deposits and gradually increasing the cost of funds.

He further noted that while prolonged high global interest rates provide a lift to financing income, they simultaneously raise the cost of funding, accentuating the vital importance of efficient liquidity management to preserve profit margins.

He highlighted that the Saudi banking sector still features low non-performing loan (NPL) rates and robust provisioning and reserves, mirroring the resilience of banks' financial positions and their capacity to withstand any potential pressures on asset quality.

Banks with low-cost deposits will benefit the most from this growth

According to Al-Hindi, growth opportunities among banks will vary in the coming years. Financial institutions with a strong, low-cost deposit base, high operational efficiency, and superior capabilities in managing liquidity and risk will be best positioned to capitalize on the opportunities created by economic growth and Vision 2030 projects.

He expects the banking sector's profits to continue growing in the coming years, albeit at varying rates among banks, emphasizing that the main challenge is no longer merely achieving growth, but achieving sustainable and balanced growth that preserves profitability, asset quality, and liquidity simultaneously.

Banks retain a comfortable buffer for lending expansion

Daniel Takieddine, Co-Founder and CEO of Sky Links Capital

For his part, Daniel Takieddine, Co-Founder and CEO of Sky Links Capital, said that the Saudi banking sector enjoys strong capitalization and comfortable profitability and operates within its regulatory limits, with all financial institutions maintaining LDRs below the SAMA's maximum threshold of 90%.

He added that this available buffer reflects banks' ability to expand lending, particularly amid sustained demand for credit driven by infrastructure commitments and projects linked to Vision 2030, although some banks have less room for maneuver than others.

Deposit growth helps narrow the funding gap and limit funding pressures

Takieddine explained that deposit growth in 2026 remains robust, which could help narrow the funding gap. He noted that loan growth has slowed relatively and pointed out that the continued gap between loan and deposit growth places greater pressure on local banks to actively manage their funding.

“These developments could sustain demand for external funding through bond issuances, alongside continued growth in the Saudi economy and the financing needs of various sectors,” he said.

The top executive continued, “Improving global risk appetite, should tensions in the Middle East continue to ease, could enhance the region's attractiveness and support Saudi banks' access to debt markets.”

Takieddine also stressed that Saudi banks are well positioned to remain key intermediaries for capital flows tied to Vision 2030, while simultaneously operating as active participants in debt markets. He emphasized that the sector's regulatory discipline, coupled with the prospect of improving geopolitical conditions, supports a positive outlook for the industry.

Improving liquidity supports continued banking sector growth

Aurélien Vincent, Senior Managing Director for Strategy and Transformation at FTI Consulting

Meanwhile, Aurélien Vincent, Senior Managing Director for Strategy and Transformation at FTI Consulting, said that a review of the latest sector developments in 2026 showed that Saudi banks have demonstrated high adaptability to the elevated interest-rate environment, benefiting from improved liquidity conditions and deposit growth that outpaces credit growth.

He added that deposits rose by 10.5% year-on-year (YoY), compared with an 8% credit growth, strengthening banks' liquidity positions. This was driven by time deposits reaching record levels, alongside a 10% month-on-month increase in government inflows.

Competition for deposits remains a strategic priority for banks

Despite this improvement, LDRs remain high relative to their long-term averages, making competition to attract deposits a strategic priority for most Saudi banks, Vincent noted.

He explained that the Saudi banking sector's 6.3% YTD profit growth reflected its continued resilience, supported by corporate lending activity, which grew by approximately 11.6% YoY, compared with relatively slower growth in retail financing.

The analyst also stated that Saudi banks boast strong capital adequacy levels, gradual improvements in LDRs, and improving spreads between banks, all of which support the sector's ability to maintain its growth trajectory throughout 2026.

Mortgage financing enters a more mature phase

Regarding mortgage financing, Vincent said that the rise in new mortgage financing in April to SAR 6.3 billion, its highest level in nine months, points to the beginning of a market recovery. However, the YTD average volume of financing remains 35% lower YoY.

These indicators reflect the mortgage market entering a more mature phase amid persistently high interest rates and increased caution among banks in assessing credit risks when extending mortgage loans, he added.

Regulatory developments enhance real estate market attractiveness

Sandeep Puri, Partner and Head of Finance for the Middle East at Addleshaw Goddard

In turn, Sandeep Puri, Partner and Head of Finance for the Middle East at Addleshaw Goddard, said the Saudi real estate market has witnessed a number of positive regulatory developments over the past 12 to 18 months as part of the objectives of Saudi Vision 2030, which has gradually translated into increased investor activity in the property market.

Government initiatives and national housing programs—particularly the Sakani Program—have expanded the pool of beneficiaries eligible for mortgage financing and improved access to financing, thereby supporting demand for banking products linked to the real estate sector, he added.

Puri also noted that these developments could strengthen growth opportunities for Saudi banks, especially those with a strong deposit base, superior liquidity and risk management capabilities, and greater efficiency in pricing financing products.