Saudi banks have multiple tools to tackle new CCyB: Analysts

The Saudi Central Bank (SAMA) issued a decision in May 2025 to raise the countercyclical capital buffer (CCyB) to 1% from 0% of total risk-weighted assets, requiring all banks and financial institutions to comply with the new ratio starting on May 25, 2026.

With four months remaining before the regulation comes into effect, questions have emerged over whether Saudi banks can meet the new requirements without affecting returns or liquidity.

The CCyB is a macroprudential tool under the Basel III framework designed to strengthen the resilience of the banking sector during periods of economic expansion by building additional capital buffers. These buffers help banks absorb losses and maintain financial stability during economic downturns.

Additional requirements estimated at SAR 34.6 billion; NCB and Al Rajhi lead

Saudi National Bank (SNB) tops the sector in terms of total risk-weighted assets, exceeding SAR 800 billion as of the end of September 2025, followed by Al Rajhi Bank at around SAR 670 billion, as shown in the table below:

Analysts surveyed by Argaam said Saudi banks are likely to rely on several options to strengthen capital ahead of the implementation date. These include retaining a larger share of earnings, temporarily reducing dividend payouts, restructuring risk-weighted assets, and issuing additional Tier 1 sukuk, while largely ruling out equity issuances at this stage.

Jassim AlJubran, Head of Sell-Side Research at AlJazira Capital

Jassim AlJubran, Head of Sell-Side Research at AlJazira Capital, said that Saudi banks with relatively lower common equity Tier 1 (CET-1) ratios could bolster their capital by retaining a higher portion of their annual net profits, given strong profitability levels, making this option the least disruptive and the most likely to be adopted.

He added that temporarily adjusting dividend distribution policies could provide tangible support to capital adequacy ratios over a short period, while some banks may also redirect their portfolios toward lower-risk assets or focus on mortgage financing products to curb the growth of risk-weighted assets (RWA).

AlJubran said equity rights issues remain unlikely at this stage due to the sector’s currently high CET1 ratios. He stressed that recent dividend reductions by some banks were driven by liquidity pressures, reflected in a rise in the loan-to-deposit ratio to 113%, rather than the new capital buffer requirements.

Rania Qanaba, Banking Sector Financial Analyst at Alpha MENA

Separately, Ranya Gnaba, a banking sector analyst at AlphaMena, said Saudi banks currently have a strong capital position, with the average Tier 1 ratio standing at 18.4% as of Q3 2025, making near-term compliance with the new rules manageable.

She added that banks may resort to strengthening retained earnings, issuing Tier 1 sukuk, and improving the quality of risk-weighted assets, noting, however, that these options could put pressure on margins and return on equity.

Are retained earnings sufficient to meet the requirements?

Al Rajhi Bank and SNB lead the sector in retained earnings as of Q3 2025. Al Rajhi posted the highest balance at SAR 29.86 billion, followed by SNB with SAR 21.50 billion, as shown below:

Regarding banks’ ability to fund the capital buffer requirements from their retained earnings, AlJubran explained that retained earnings are sufficient for most Saudi banks, particularly the larger banks with high profitability, strong capital margins, conservative payout ratios, and diversified income sources.

He added that total risk-weighted assets for banks reached approximately SAR 3,467 billion by the end of September 2025, meaning that raising CCyB by 1% would require around SAR 34.6 billion in additional CET-1 capital—an amount roughly equivalent to the sector’s pre-tax profits over a four-month period.

AlJubran pointed out that the sector’s overall CET-1 ratio stood at a healthy 15.3% by the end of September 2025, which is sufficient to meet the minimum requirements, despite the final requirements not yet being fully defined.

He noted that banks such as SNB, Al Rajhi Bank, and Arab National Bank (ANB) rank among the highest in terms of capital ratios, ranging between 16% and 17%, while banks with the lowest CET-1 ratios in the sector still maintain comfortable levels above 12%, indicating room to adapt to the new requirements without financial strain.

AlphaMena’s Gnaba added that boosting retained earnings will be among the key strategies banks may adopt in the coming period to support capital ratios, which could result in pressure on dividend distributions, especially if banks choose to temporarily reduce payouts to preserve the strength of their capital positions.

Potential impact on returns, liquidity under pressure

AlJubran highlighted that their estimates indicate that if the sector increases equity in line with the 1% capital buffer requirement—equivalent to approximately SAR 34.6 billion—it could reduce the return on equity (ROE) by 35 to 50 basis points, depending on each bank’s leverage and profitability levels.

He added that increasing CET-1 requirements raises the opportunity cost, as it limits banks’ ability to leverage, directly putting pressure on shareholder returns.

However, AlJubran emphasized that the need to fully raise capital remains limited at present, given the sector’s currently high capital ratios, which provide banks with a comfortable margin to comply without significant impact.

Gnaba also noted that the greater impact in the medium term may not be capital-related but rather linked to liquidity, amid strong financing demand driven by Vision 2030 projects.

She explained that banks relying more heavily on corporate deposits may face greater funding challenges compared to banks with a broader retail customer base.