PHOTO
Asad Ahmed, Managing Director and Head of Middle East Financial Services at A&M. Image courtesy: Alvarez & Marsal
- Significant corporate lending drives 14.4 percent loan growth
- Net interest margins (NIM) contract by 0.5 percent owing to rising funding costs
Kingdom of Saudi Arabia – Leading global professional services firm Alvarez & Marsal (A&M) has released its 5th annual edition of the Kingdom of Saudi Arabia (KSA) Banking Pulse for fiscal year 2024. The performance of the top 10 banks in the Kingdom remains robust.
Loans and advances (L&A) expanded by 14.4 percent YoY in FY24, primarily driven by higher corporate lending (+17.7 percent YoY). However, deposit mobilization growth slowed to 7.9 percent YoY, largely impacted by deceleration in term deposits, which grew by only 4.7 percent YoY. Loans to Deposit Ratio (LDR) increased by 6% to 104.7. Cost of Funds (CoF) rose by 55bps YoY to 3.5 percent, resulting in a slight contraction in Net Interest Margin (NIM) by 11bps YoY to 3.0 percent. Operating income softened marginally, growing by 9.3 percent and reflecting the effect of higher net fees & commission income and other operating income.
Overall, net profit improved by 13.5 percent YoY, underpinned by lower impairment charges, which were down 7.5 percent YoY. Cost efficiency improved, with the cost-to-income ratio declining to 31.3 percent (-63bps YoY), as operating income growth outpaced operating expenses growth (+7.1 percent YoY). Despite margin pressures, Return on Equity (RoE) strengthened to 14.5 percent (+72bps YoY), while Return on Assets (RoA) remained stable at 2.0 percent.
The prevailing trends identified for FY 2024 are as follows:
1. Aggregate loans and advances (L&A) of banks expanded by 14.4 percent YoY, outperforming the 10.6 percent YoY growth reported in FY’23, led by an increase in corporate loan book (+17.7 percent YoY). Due to strong lending momentum, Loan-to-Deposit Ratio (LDR) reached 104.7 percent (+599bps YoY).
2. The changing interest rate environment put pressure on Net Interest Margin (NIM), as aggregate NIM of the banks deteriorated by 11bps YoY to 3.0 percent. The Cost-of-Funds (CoF) further increased to 3.5 percent (+55bps YoY), while Yield-on-Credit (YoC) expanded to 8.4 percent (+45bps YoY).
3. The aggregate Cost-to-Income (C/I) ratio of the banks continued to improve further to 31.3 percent (-63bps YoY), as operating income growth (+9.3% percent YoY) outpaced increase in operating expenses, thereby enhancing efficiency.
4. Cost-of-Risk (CoR) of Saudi banks improved marginally by 7bps YoY to 0.3 percent. Seven out of ten banks reported improvement in the CoR on the back of lower impairment charges (-7.5 percent YoY). Overall, non-performing loans (NPL) / Net Loans ratio declined by 18bps YoY to 1.1 percent in 2024.
5. Banks reported healthy net profit growth of 13.5 percent YoY (+11.8 percent YoY in FY 2023) with aggregate profit reaching SAR 79.6bn, supported by lower impairment charges. Operating income grew by 9.3 percent YoY while operating expenses were under control (+7.1 percent YoY).
6. Net fees and commission income and other operating income saw significant growth of 16.4 percent YoY and 14.7 percent YoY, respectively. The increase in net income resulted in Return on Equity (RoE) expanding to 14.5 percent (+72 bps QoQ) and Return on Assets (RoA) remaining consistent at 2.0 percent.
OVERVIEW
The table below sets out the key metrics:
| CATEGORY | METRIC | 2023 | 2024 |
| Size | Loans and Advances Growth (YoY) | 10.6% | 14.4% |
| Deposits Growth (YoY) | 8.4% | 7.9% | |
| Liquidity | Loan-to-Deposit Ratio (LDR) | 98.7% | 104.7% |
| Income & Operating Efficiency | Operating Income Growth (YoY) | 9.5% | 9.3% |
| Operating Income / Assets | 3.7% | 3.6% | |
| Non-Interest Income / Operating Income | 20.8% | 22% | |
| Yield on Credit (YoC) | 8.0% | 8.4% | |
| Cost of Funds (CoF) | 2.9% | 3.5% | |
| Net Interest Margin (NIM) | 3.1% | 3.0% | |
| Cost-to-Income Ratio (C/I) | 31.9% | 31.3% | |
| Risk | Coverage Ratio | 158.7% | 161.0% |
| Cost of Risk (CoR) | 0.4% | 0.3% | |
| Profitability | Return on Equity (RoE) | 13.8% | 14.5% |
| Return on Assets (RoA) | 2.0% | 2.0% | |
| Return on Risk-Weighted Assets (RoRWA) | 2.6% | 2.7% | |
| Capital | Capital Adequacy Ratio (CAR) | 20.1% | 19.7% |
Source: Financial statements, investor presentations, A&M analysis
Mr. Asad Ahmed, Managing Director and Head of Middle East financial services at A&M commented: “Our 5th annual Saudi Arabian Banking Pulse reaffirms the stability of the Kingdom’s banking sector, which has seen an increase in operating income and an uptick in return on equity. Amid higher Loans to Deposit ratio, and despite the pressure on net interest margins due to rising funding costs, banks have enhanced profitability through improved operational efficiency and reduced impairment charges. As we move forward, the strategic initiatives under Vision 2030 and the sector's solid capitalization will be crucial in navigating future economic conditions.”
Methodology
A&M’s KSA Banking Pulse examines data of the 10 largest listed banks in the Kingdom, comparing the FY’24 results against FY’23 results. Using independently sourced published market data and 16 different metrics, the report assesses banks’ key performance areas, including size, liquidity, income, operating efficiency, risk, profitability, and capital.
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).
About Alvarez & Marsal
Founded in 1983, Alvarez & Marsal is a leading global professional services firm. Renowned for its leadership, action and results, Alvarez & Marsal provides advisory, business performance improvement and turnaround management services, delivering practical solutions to address clients' unique challenges. With a world-wide network of experienced operators, world-class consultants, former regulators and industry authorities, Alvarez & Marsal helps corporates, boards, private equity firms, law firms and government agencies drive transformation, mitigate risk and unlock value at every stage of growth.
To learn more, visit: AlvarezandMarsal.com.
CONTACT: Seán Lawless, Hanover Middle East
