Saudi Arabia’s banking sector posted an 18% year-on-year (YoY) increase in net profit to 22.9 billion Saudi riyals ($6.1 billion) in the second quarter of 2025, beating consensus estimates of SAR22.3 billion, according to  Al Rajhi Capital. 

The earnings momentum was mainly led by Al Rajhi Bank and Saudi National Bank.

Lending rose 16% YoY, outpacing deposits and pushing the loan-to-deposit ratio (LDR) to 106%, led by Riyad Bank, Saudi Awwal Bank (SAB), Alinma Bank and Al Rajhi Bank.

Net interest margins (NIMs) narrowed sequentially due to tighter liquidity conditions and rising competition in the corporate loans.

The 2025 guidance was mixed for banks. Six out of nine banks that conducted earnings calls downgraded their NIM guidance, citing tighter liquidity conditions, lesser rate cuts than anticipated, and higher competition in corporate financing. 

Most lenders expect one or two rate cuts by year-end, while diversifying funding through debt instruments.
 
Banks are also expected to prioritise profitability over loan growth. The seasonal slowdown in the third quarter and corporate repayments in the fourth quarter will weigh on loan growth in the second half of the year.
Despite weaker oil prices, most banks reported that non-performing assets were under control, with solid recoveries in the first half of 2025.

They confirmed ample headroom to absorb the Saudi Central Bank’s 1% countercyclical capital buffer effective from 2026, the report stated.

(Editing by Seban Scaria seban.scaria@lseg.com)