The Saudi banks continue to improve their operations as indicated by the improvement in the cost-to-income ratio for the third consecutive quarter.
According to the most recent KSA Banking Pulse report from international professional services firm Alvarez & Marsal (A&M), loan growth among the nation’s top lenders maintained a healthy trajectory in the third quarter of 2025, providing a compelling indication of the Kingdom of Saudi Arabia‘s banking sector resilience and changing credit landscape. Corporate credit was the main driver of the 2.5% quarter-over-quarter (QoQ) increase in aggregate net loans and advances, highlighting Saudi banks’ crucial role in supporting the country’s economic transformation.
The study, which examines the performance of the Kingdom’s ten biggest listed banks, highlights a banking industry in good financial standing, bolstered by robust profits, prudent risk management, and a continuous transition to diversified credit portfolios. The ongoing lending momentum is especially notable given the larger regional and global economic uncertainty that surrounds this performance.
Corporate loans, which increased 3.0% QoQ and greatly outpaced the 1.7% growth in the retail lending segment, were at the heart of the Q3 lending story. Approximately 59% of Saudi banks’ total loan portfolios currently consist of corporate lending, which reflects a strategic focus on funding corporate capital expenditures, infrastructure development, and business activity.
This emphasis on corporate clients, which includes major corporations, mid-sized businesses, and important industries propelling Vision 2030 diversification, demonstrates Saudi banks‘ faith in the demand for commercial credit. Lenders seem well-positioned to support industries like energy, manufacturing, trade, and services, which are crucial to the Kingdom’s long-term economic planners, with sufficient liquidity and comfortable capital buffers.
Despite a slight 2.5% increase in total loans, the complex makeup of this growth indicates a structurally balanced bank lending environment. Even though it grew more slowly than corporate loans, retail credit nevertheless contributed to the expansion of credit overall, proving that consumer demand for borrowing is unaffected by tighter macroeconomic conditions.
The report highlights a significant improvement in asset quality during the quarter, with coverage ratios increasing and non-performing loan (NPL) ratios decreasing. These advancements show that banks are expanding their credit books in a responsible manner, upholding the risk controls and careful provisioning that support long-term financial stability.
Efficiency-wise, the Saudi banks continue to improve their operations as indicated by the improvement in the cost-to-income ratio for the third consecutive quarter. This is a result of the banks’ efforts in optimizing their activities with the aim of cutting costs further while maximizing revenue sources through both earnings and fees.
The net interest margins showed a small decrease due to an increase in funding costs, a trend that was seen in most markets worldwide due to the change in interest rate environments. However, banks showed a 2.8 percent increase in net income on a QoQ basis due to improvements in other operating income sources such as fees, commissions, and other financial services.
This resiliency in profitability, regardless of margin constraints, reflects the industry’s ability to adapt. Banks are embracing more sources of revenue, such as fees and capital markets operations, to compensate for industry pressures in interest income. Such industry dynamics are expected to continue to facilitate earnings resilience through 2026.
Experts believe that the outcomes of Q3 are reflective of a banking system that is growing in terms of maturity and complexity. Coming together for corporate borrowing falls in line with an overall vision concerning the development of the nation’s economic priorities, especially that of ‘Vision 2030,’ which gives importance to the development of the private sector and large-scale infrastructure development.
With a continued shift in diversification of the Saudi economy from being oil-centric to a more diversified one, the impact of commercial lending as a catalyst for banks in terms of growth is also set to emerge. With solid credit fundamentals and a keen strategy on balance-sheet management, banks in Saudi Arabia are set for a major role in the exciting developments in the Kingdom.
