• Moderate growth witnessed in both lending and customer deposits
  • Profitability expected to taper down in the coming quarters

Kingdom of Saudi Arabia - Leading global professional services firm Alvarez & Marsal (A&M) has released its latest Saudi Arabia (KSA) Banking Pulse for Q1 2023. The report highlights profitability for the top 10 lenders in the Kingdom continues to be affected by slower growth in operating income and higher impairment charges. Despite improvement in the cost-to-income (C/I) ratio by 146 basis points (bps) QoQ, higher impairment charges of 14.4 percent QoQ resulted in only a marginal growth in profitability, with net profit increasing by 2.7 percent from Q4’22 to SAR 17.3bn.

Return on equity (RoE) declined by 67 bps QoQ to 15.2 percent, while return on assets (RoA) remained stable at 2 percent. Loans & advances (L&A) increased by 3.2 percent QoQ mainly driven by growth in corporate / wholesale banking (+4.2 percent QoQ). Deposits increased by 4.7 percent QoQ, reporting highest growth in time deposits (+6.1 percent QoQ). Operating income increased by 4.1 percent QoQ, primarily driven by growth in non-core income (+19.0 percent QoQ) but the full impact was lower given the slower growth in total net interest income (+0.5 percent QoQ).

Using independently sourced published market data and 16 different metrics, A&M’s KSA Banking Pulse assesses banks’ key performance areas, including size, liquidity, income, operating efficiency, risk, profitability, and capital, tracking Q1’23 results against Q4’22. The report also offers an overview of the key developments affecting the banking sector in the Kingdom.

The country’s 10 largest listed banks analyzed in A&M’s KSA Banking Pulse are: Saudi National Bank (SNB), Al Rajhi Bank, Riyad Bank (RIBL), Saudi British Bank (SABB), Banque Saudi Fransi (BSF), Arab National Bank (ANB), Alinma Bank, Bank Albilad (BALB), Saudi Investment Bank (SIB) and Bank Aljazira (BJAZ).

The prevailing trends identified for Q1 2023 are as follows:

  • L&A and deposits increased by 3.2 percent and 4.7 percent QoQ, respectively, faster than the previous quarter. Consequently, industry-wide loan-to-deposit-ratios (LDR) decreased 1.4 percent points QoQ to 95.2 percent.

Retail loans and corporate loans reported growth of 2.0 percent QoQ and 4.2 percent QoQ, respectively, in Q1’23. Term deposits and demand deposits reported growth of 6.1 percent QoQ and 4.5 percent QoQ, respectively, in Q1’23.

  1. Operating income grew mainly due to an increase in non-core income for the quarter. Total operating income increased moderately by 4.1 percent QoQ in Q1’23. Total net interest income (NII) grew marginally by 0.5 percent QoQ, whereas non-core income increased 19.0 percent QoQ, driving the overall growth in total operating income. As SAIBOR increased by 75bps in Q1’23, aggregate total interest cost increased by 27.7 percent QoQ.
  2. NIMs contracted marginally on the back of lower LDR and marginal spread expansion. Aggregate NIM contracted by 7bps in Q1’23. Yield on credit (+49bps QoQ) increased to 7.4 percent due to the rise in benchmark rates in Q1’23, while the cost of funds (CoF) increased by 45bps QoQ to 2.3 percent. Six out of the top 10 banks reported a contraction in NIM.
  3. KSA banks delivered improved cost efficiency in Q1’23. Cost-to-income (C/I) ratio increased by 146bps QoQ to reach 30.8 percent. The surge was due to a growth in operating income (+4.1 percent QoQ) and decline in operating expense (-0.6 percent QoQ). Eight out of 10 banks reported improvement in cost efficiency.
  4. Cost of risk (CoR) increased on escalation in impairment charges. Total CoR deteriorated by 6 bps QoQ to settle at 0.5 percent in Q1’23. Four of the top 10 banks reported improvement in CoR.
  5. RoE for KSA banks enhanced and maintained well above the pre-pandemic levels. Aggregate RoE increased by 67bps QoQ to 15.2 percent in Q1’23. RoA remained stable at 2 percent, with net profit and average total assets growing by 2.7 percent and 3.7percent QoQ, respectively. Seven of the top 10 banks showed an improvement in RoE.


The table below sets out the key metrics:



Q4 2022

Q1 2023


Loans and Advances Growth (QoQ)



Deposits Growth (QoQ)




Loan-to-Deposit Ratio (LDR)



Income & Operating Efficiency

Operating Income Growth (QoQ)



Operating Ince / Assets



Non-Interest Income / Operating Income



Yield on Credit (YoC)



Cost of Funds (CoF)



Net Interest Margin (NIM)



Cost-to-Income Ratio (C/I)




Coverage Ratio



Cost of Risk (CoR)




Return on Equity (RoE)



Return on Assets (RoA)



Return on Risk-Weighted Assets (RoRWA)




Capital Adequacy Ratio (CAR)



Source: Financial statements, investor presentations, A&M analysis

Mr. Asad Ahmed, A&M Managing Director and Head of Middle East Financial Services, commented: “We consider the Saudi banks’ capital position to be strong. Profitability for the quarter marginally improved due to an increase in operating income, mainly owing to a growth in non-core income which was further supported by higher impairments.

“Looking ahead, we expect banks to face a slowdown in credit growth and a possible uptick in non-performing loans due to the higher interest rate environment. Saudi Central Bank (SAMA) has maintained its interest rates in line with the US Federal Reserve, and we expect this to continue. The higher interest rate environment is causing customers to migrate to interest-bearing instruments that is likely to affect the cost of funding for some of the banks.”

About Alvarez & Marsal

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Kiran Makhija/ Prerna Agarwal
Hanover Middle East
Sandra Sokoloff, Senior Director of Global Public Relations
Alvarez & Marsal