Saudi Arabia’s ten largest listed banks started 2025 with solid earnings momentum. Aggregate net income rose 6.3% quarter-on-quarter to SR22.2bn ($5.87bn), driven by a 9.6% increase in non-interest income and a 15.8% decline in impairment charges, according to Alvarez & Marsal’s Q1 2025 Saudi Banking Pulse report.

Return on equity rose to 15.3%, while return on assets reached 2.1%.

Although the IMF revised Saudi Arabia’s 2025 GDP forecast to 3.0% in April, down from 3.3% in January, business activity remained resilient. The kingdom’s purchasing managers’ index held steady at 59.0 in Q1, indicating ongoing expansion in non-oil sectors. The Saudi Central Bank (Sama) kept its repo rate unchanged at 5.0%, but the effects of tightening continued to dampen credit appetite.

The non-oil economy is projected to grow 4.3% in 2025, supported by investment in Vision 2030 projects across infrastructure, tourism and logistics. These investments are offset the impact of Opec+ oil production cuts.

Corporate lending led credit expansion, with net loans and advances rising 5.4% quarter-on-quarter, driven by a 7.5% increase in corporate loans. Deposits rebounded, growing 4.0% fueled by an 8.1% surge in time deposits. Current and savings account balances also improved. As a result, the loan-to-deposit ratio climbed to 106.1%, up from 104.2% in the previous quarter.

Liquidity remained robust. Demand deposits and cash in circulation rose 2.6% to SR1.71tn, while broader money supply including savings and time deposits increased 6.5% to SR2.79tn. Overall liquidity in the system grew 4.6% to SR3.06tn, despite an 11.6% quarterly decline in quasi-monetary deposits.

Effective cost control helped mitigate pressure on margins. Operating income rose 3.2%, while operating expenses fell 1.7%, improving the cost-to-income ratio to 29.8%, its lowest level in over a year. Net interest margins, however declined 7 basis points to 2.87%.

Asset quality continued to improve. The non-performing loan ratio declined to 1.03%, while the coverage ratio stood at 154.8%, indicating a stable credit environment and lower stage-3 provisioning.

Banks are also exploring structural adjustments to support long-term asset quality and capital efficiency. Several lenders are evaluating the sale of of non-performing loan portfolios to reduce credit exposure. Additionally, the Saudi Real Estate Refinance Company (SRC) acquired SR3.4bn worth of mortgage assets from SNB, marking progress in establishing a domestic mortgage securitisation market.

Regulatory activity remained active during the quarter. Sama issued new frameworks for close-out netting and collateral management and launched a pilot phase of the eSama portal. New banking rules also require commercial entities to link business licences to their bank accounts.

The sector also continued to attract international and regional players. Ant International opened a Riyadh office, Google Pay is expected to go live via mada, and local fintech platforms expanded expense and payment capabilities through new partnerships.

Looking ahead, Alvarez & Marsal cautions that rising public debt, which is projected to reach 44% of GDP by 2029, along with oil market volatility and global trade tensions, may weigh on the banking sector in the coming quarters.