Saudi Arabia: Saudi Arabia’s top banks have continued to register steady earnings growth while maintaining profitability despite global headwinds amid rising interest rates, according to global professional services firm Alvarez & Marsal.

The analysis by the New York-headquartered company revealed the Kingdom’s leading 10 banks collectively recorded 2.7 percent quarter-on-quarter growth in net profits during the first three months of the year to hit SR17.3 billion ($4.61 billion).

The report noted that the boost in profitability was driven by significant growth in non-core income and a rise in cost efficiencies.  

The Saudi banks managed to enhance and maintain the return on equity well above the pre-pandemic levels as their aggregate RoE increased by 67 basis points to 15.2 percent in the first quarter against the previous three months. 

Their return on assets remained stable at 2 percent, with average total assets growing by 3.7 percent during the same period, the report noted. 

“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,” said Asad Ahmed, managing director and head of Middle East financial services at Alvarez & Marsal, in a statement. 

He noted the higher interest rate environment is causing customers to migrate to interest-bearing instruments that could likely affect the cost of funding for some banks in the coming months.  

“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 has maintained its interest rates in line with the US Federal Reserve, and we expect this to continue,” added Ahmed.  

The report further revealed that Saudi banks recorded a 4.7 percent growth in deposits and a 3.2 percent rise in loans and advances. 

Highlighting the growth of the private sector in the Kingdom, the analysis found that retail loans and corporate loans witnessed a quarter-on-quarter growth of 2 percent and 4.2 percent, respectively.  

The report further pointed out that the net interest margin of these top banks in Saudi Arabia during the first quarter remained stable at 3.08 percent, although it is slightly down from the 3.15 percent recorded in the previous three-month period.  

Saudi Arabia’s top 10 listed banks analyzed in the report include Saudi National Bank, Al Rajhi Bank, and Riyad Bank, as well as Saudi British Bank, Banque Saudi Fransi, and Arab National Bank.  

The other banks examined by Alvarez & Marsal were Alinma Bank, Bank Albilad, Saudi Investment Bank, and Bank Aljazira. 

The analysis looked at these banks’ key performance areas, including size, liquidity, income, operating efficiency, risk, profitability, and capital.