• Operating income declined 2.3% QoQ, primarily due to 13.2% QoQ decline in non-interest income, which outweighed the modest 1.1% QoQ growth in net interest income
  • Strong asset quality, supported by a stable NPL ratio of 0.9% and lower CoR of 0.15%
  • Profitability remained broadly stable, with NIM holding at 2.84% and RoA at 2.0%, although RoE moderated to 14.7%

Riyadh, Kingdom of Saudi Arabia – Alvarez & Marsal (A&M), the global professional services firm known for its senior-led, operator-driven approach, has released its latest edition of the Kingdom of Saudi Arabia (KSA) Banking Pulse, analyzing the Q1 2026 performance of the Kingdom’s ten largest listed banks. The quarter underscored the resilience of the KSA banking sector, supported by healthy loan growth, stable margins, and easing credit costs. However, banks faced pressure from weak non-interest income generation, higher operating expenditure, and lower benchmark rates amid heightened geopolitical uncertainty.

Aggregate net loans and advances increased by 1.6% QoQ, while deposits grew at a faster pace of 3.9% QoQ. Aggregate operating income declined by 2.3% QoQ to SAR 40.4bn, as non-interest income declined by 13.2% QoQ, outweighing the 1.1% QoQ growth in net interest income. Operating efficiency weakened, with the C/I ratio rising to 30.1% due to higher expenses and softer income growth, although ongoing investments are expected to support future productivity gains.

Sector NIM remained stable at 2.84% in Q1 2026, despite a decline in YoC to 7.8%, as lower funding costs helped offset margin pressure, with CoF declining to 3.2%. However, profitability softened with RoE moderating to 14.7%, while RoA remained stable at 2.0%.

Asset quality remained healthy, with a stable NPL ratio at 0.9% and an improved CoR of 0.15%. The coverage ratio also strengthened to 162.6%, underscoring prudent risk management and providing substantial provisioning buffers.

The report analyzes the top ten KSA banks by asset size: Saudi National Bank (SNB), Alrajhi Bank (ALRAJHI), Riyad Bank (RIBL), Saudi Awwal Bank (SAB), Banque Saudi Fransi (BSF), Alinma Bank (ALINMA), Arab National Bank (ANB), Saudi Investment Bank (SAIB), Bank Albilad (BALB), and Bank Aljazira (BJAZ).

Mr. Sam Gidoomal, Managing Director and Head of Middle East Financial Services, commented: “The Q1 2026 performance underscores the resilience of the KSA banking sector, supported by healthy loan growth, stable margins, and easing credit costs. Nevertheless, banks witnessed emerging pressures from weaker non-interest income generation, higher operating expenditure, and lower benchmark rates.”

Prevailing Trends Identified for Q1 2026

  • Deposit growth outpaced credit expansion. Net L&A increased by 1.6% QoQ, while deposits grew at a faster pace of 3.9% QoQ, resulting in 2.4% QoQ decline in the LDR to 104.1%.
  • Operating income moderated. Operating income declined by 2.3% QoQ, primarily due to 13.2% QoQ decline in non-interest income and modest growth in net interest income of 1.1% QoQ.
  • Elevated investment spending weighed on operating efficiency. The C/I ratio increased to 30.1%, driven by elevated technological investment spending and slower operating income growth.
  • Profitability remained broadly stable despite the lower-rate environment. NIM was maintained at 2.84% and RoA at 2.0%, while RoE moderated to 14.7%.
  • Asset quality remained solid. The NPL ratio held steady at 0.9%, while CoR improved to 0.15%. The coverage ratio increased to 162.6%, supported by continued provisioning discipline.
  • Bank valuation remained appealing. As of Q1 2026, KSA banks traded at 10.8x P/E and 1.6x P/TBV, reflecting resilient earnings generation and strong capital positions despite a modest moderation in sector valuations.

Looking Ahead: Q2 2026

  • Margin trajectory will remain a key focus as banks navigate the full impact of lower benchmark rates through funding mix optimization, loan repricing, and growth in low-cost deposits.
  • Financing growth will be closely monitored, particularly across corporate, SME, and Vision 2030-linked sectors, to assess the sustainability of credit demand amid evolving macro conditions.
  • Asset quality is expected to remain healthy, although banks are likely to maintain sustainable provisioning buffers amid ongoing geopolitical uncertainty.
  • Macroeconomic outlook will remain a key area of focus following successive downward revisions to FY 2026 GDP growth forecast by IMF, reflecting the potential impact of regional geopolitical tensions on economic activity
  • Digital and AI adoption will remain a key focus, with banks leveraging automation and AI to improve efficiency, risk management, and customer engagement, while the impact on operating efficiency remains a key watchpoint.

Overview

Category

Metric

Q4 2025

Q1 2026

Growth and Funding

Net L&A Growth (QoQ)

0.8%

1.6%

Deposits Growth (QoQ)

0.6%

3.9%

Loan-to-Deposit Ratio (LDR)

106.5%

104.1%

Income and Efficiency

Net Income Growth (QoQ)

0.2%

1.2%

Cost of Funds (CoF)

3.4%

3.2%

Net Interest Margin (NIM)

2.84%

2.84%

Cost-to-Income Ratio (C/I)

28.2%

30.1%

Returns

Return on Equity (RoE)

15.0%

14.7%

Return on Assets (RoA)

2.0%

2.0%

Return on Risk-Weighted Assets (RoRWA)

2.7%

2.7%

Risk

Non-Performing Loans (NPL) %

0.9%

0.9%

Cost of Risk (CoR)

0.40%

0.15%

Coverage Ratio

162.4%

162.6%

Capital & Liquidity

Capital Adequacy Ratio (CAR)

20.5%

20.9%

Liquidity Coverage Ratio (LCR)

171.9%

171.6%

 

Source: Financial statements, Investor presentations, Pillar III Disclosure, A&M analysis

About Alvarez & Marsal

Founded in 1983, Alvarez & Marsal is a leading global professional services firm. Renowned for its leadership, action and results, A&M provides advisory, business performance improvement and turnaround management services, delivering practical solutions to clients' unique challenges. With a worldwide network of experienced operators, world-class consultants, former regulators and industry authorities – and a long-standing presence across Europe and the Middle East – A&M helps corporates, boards, private equity firms, law firms and government agencies drive transformation, mitigate risk and unlock value at every stage of growth.

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