Saudi Arabia’s biggest bank wants wealthy depositors back

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• Shift from current accounts
• Banks need deposits to fund loans
• Pressure on net interest margin

Saudi Arabia’s largest bank by assets is trying to woo back wealthy customers after losing many since a merger in 2021.

SNB, or Saudi National Bank, is a merger of National Commercial Bank and Samba Financial Group, formerly known as the Saudi American Bank.

It has underperformed against its major domestic rivals, reporting comparatively lower annual net profit growth, and suffering a near-20 percent decline in its stock price over the past 12 months

Deposits fell 1.7 percent to SAR580 billion in the year to December 31 from SAR590 billion ($157 billion), which the bank said was largely down to customers withdrawing money from current and savings accounts, known in the banking industry as Casa.

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“Saudi banks are fighting for deposits because most are enjoying very strong loan growth and so need additional deposits to fund these loans,” said Rahul Bajaj, director of Mena equity research at Citigroup in Dubai.

Casa accounted for 72.2 percent of SNB’s total bank deposits on December 31, down from 76 percent a year earlier, while time deposits rose to 22 percent from 20 percent over the same period.

Casa accounts pay zero or much lower interest rates than time deposits, in which the customer cannot withdraw money for a fixed period without incurring penalties.

“Whatever new deposits are coming to Saudi banks are mostly in timed deposit accounts,” Bajaj said. “That will continue to pressure margins.”

SNB’s net interest margin fell to 3 percent in 2024, down 13 basis points versus 2023. This metric is critically important to banks as it essentially represents the spread between the interest rate it pays on deposits and the interest rate it charges for loans.

Competition for customer deposits in the region has pushed up term-deposit interest rates in markets such as Saudi Arabia.

This has put pressure on SNB’s net interest margin and led the bank’s annual net profit to rise a sluggish 6 percent to SAR21 billion in 2024.

In contrast, Al Rajhi Bank posted an 19 percent increase in annual profit, while net income at Riyad Bank and Saudi Awwal Bank grew 16 and 15 percent respectively, according to AGBI calculations. This trio and SNB are Saudi Arabia’s four largest banks by assets.  

Before the SNB merger, wealthy clients held sizable deposits at each of NCB and Samba. After the merger, some transferred a portion of their money to other banks to diversify their risk. Now SNB wants them back, bank executives said in an earnings call with analysts.

Bajaj forecast that Saudi Arabia’s banking sector will achieve annual loan growth of 12 percent in 2025. Corporate lending will expand by as much as 15 percent and retail borrowing as much as 9 percent, he said.

“Saudi’s giga-projects have a trickle-down effect as contractors hire subcontractors and so on, which will boost loan demand from SMEs as well as corporations,” Bajaj said. “The volume of loan growth will be a big positive. How banks fund that growth will be a key constraint for the sector.”

Bank customers have switched more of their money to higher-yielding time deposits after a sharp rise in interest rates from near-zero in 2022 that ended a prolonged period of ultra-low rates.

SNB shares ended Wednesday at SAR33.90. Bahrain's Sico Bank has a price target of SAR45 per share for SNB and a "buy" recommendation on the stock.