Saudi banks recorded stronger deposit growth during the second quarter of 2026. Saudi banks also increased lending as profitability improved across the sector. Deposits at the 10 largest listed lenders climbed 2.7 percent from the first quarter. Meanwhile, net loans and advances increased 1.8 percent during the same period.
The figures come from the latest KSA Banking Pulse report from Alvarez & Marsal. The analysis covers Saudi Arabia’s 10 largest listed banks by assets. Deposit growth exceeded lending growth during the quarter. Consequently, the sector’s loan-to-deposit ratio fell by one percentage point. The ratio reached 103.1 percent at the end of the second quarter.
The banking sector also recorded stronger operating income during the period. Aggregate operating income increased 5.1 percent to SR42.5 billion. That figure equals about $11.3 billion. Other operating income provided the largest boost during the quarter. It surged 38.5 percent compared with the previous period.
At the same time, net interest income increased 2.1 percent. Net fee and commission income also grew by 2.1 percent. These gains helped support overall bank earnings during the quarter. Therefore, the sector maintained positive income growth despite changing market conditions.
Saudi banks also improved their operating efficiency during the second quarter. The sector’s cost-to-income ratio declined to 28.6 percent. It stood at 30.1 percent during the first quarter. The improvement came as banks continued investing in technology and infrastructure. They also maintained spending on strategic development initiatives.
Meanwhile, the sector’s net interest margin remained relatively stable. It reached 2.85 percent during the second quarter. Return on equity increased by 28 basis points to 15 percent. Return on assets also improved by four basis points. It reached 2.1 percent during the period.
Asset quality remained broadly stable across the banks covered. The non-performing loan ratio stayed at 0.9 percent. Additionally, the coverage ratio increased slightly to 162.7 percent. However, the cost of risk rose to 0.32 percent. Banks recorded higher provisions for potential credit losses during the quarter.
The report also highlights changing conditions for bank margins. Benchmark interest rates continue to influence funding costs and lending returns. As rates decline, banks may face changes in their interest margins. Funding costs could also reprice gradually as monetary conditions evolve.
Consequently, banks will need to manage credit demand carefully. They must also balance lending growth with funding conditions. At the same time, maintaining strong asset quality remains important. These factors could shape financial performance during the third quarter.
Domestic investment continues to support banking activity in Saudi Arabia. Vision 2030 projects remain an important source of economic activity. Broader diversification efforts also create opportunities across several industries. As a result, demand for banking services can continue developing alongside the wider economy.
Geopolitical conditions also remain relevant for banks and borrowers. Changes in energy markets can affect business conditions and financing costs. However, domestic economic activity remains an important factor for the sector. Therefore, banks will continue monitoring both international and local developments.
The analysis includes Saudi National Bank, Al Rajhi Bank, and Riyad Bank. Saudi Awwal Bank and Banque Saudi Fransi also form part of the group. Other lenders include Alinma Bank and Arab National Bank. Saudi Investment Bank, Bank Albilad, and Bank Aljazira complete the 10-bank sample.
Overall, Saudi banks entered the second half of 2026 with several positive indicators. Deposit growth outpaced lending growth during the second quarter. Operating income also increased, while efficiency measures improved. At the same time, asset quality remained broadly stable across the covered institutions.
The latest results show how the sector continues adapting to changing financial conditions. Banks are also supporting economic activity through lending and investment. Meanwhile, stronger deposits provide an important source of liquidity. Going forward, interest rates, funding costs, credit demand, and asset quality will remain key factors for the sector.
