Saudi banks’ profits fall as interest margins are squeezed

Reuters/Faisal al Nasser

• Lowest monthly total since November
• Non-oil sector growth slows
• Bank profits up year on year

Combined profits in April at Saudi Arabia’s banks fell 3.3 percent compared with March, to SAR6.7 billion ($1.9 billion), the lowest monthly total since last November’s SAR6.1 billion, central bank data shows.

Nevertheless, banks total profits for January to April was SAR27.4 billion, up from SAR24.8 billion for the same period in 2023, a report by the Saudi Arabian Monetary Agency (Sama) revealed.

Net interest margins at Gulf banks have been under pressure despite historically high interest rates, which usually benefit lenders, as customers switch cash to interest-bearing accounts to earn a better yield on their savings.

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Banks are also having to offer more attractive rates to woo customers. Deposits typically provide cheap funding for banks to then re-lend to borrowers.

The government-controlled Saudi National Bank is the kingdom’s largest by assets, followed by Al Rajhi Bank, Riyad Bank, Saudi Awwal Bank and Banque Saudi Fransi, according to S&P Global data.

Banks’ combined deposits totalled SAR2.6 trillion in April, down slightly on March’s all-time high and the first month-on-month decrease since last November. Monthly deposit growth has averaged 0.7 percent since the start of 2021.  

The ratio of time and saving deposits – money held in interest-bearing accounts – to total deposits, including current accounts which earn no interest, has soared since the US Federal Reserve began raising rates from near-zero in early 2022. The Fed’s benchmark rate is at a two-decade high of about 5.3 percent.

The ratio was 23 percent in February 2022 and peaked at 34.9 percent last December although it fell back to 32.8 percent in April 2024.

Asset fall

Banking sector combined assets fell marginally in April to SAR4.1 trillion, from March’s record high, in the first month-on-month fall since January 2023, according to AGBI calculations based on Sama data.

Banks’ assets have surged this decade from an aggregate SAR2.6 trillion at the end of 2019 as the kingdom’s economic diversification efforts intensified under its Vision 2030 development programme.

The country’s non-oil sector quarterly economic growth slowed to 2.8 percent in the first three months of 2024, its smallest increase since the pandemic in 2020, data from the financial information provider Trading Economics shows.

The number of new mortgages fell to 7,085 in April, the lowest monthly total since July 2023 and down by a third versus March, although last month’s approvals are likely to have been affected by the Eid Al-Fitr holidays.