According to recently released data, the combined profit of Saudi banks in October 2024 was SR7.7 billion (USD 2.05 billion), representing a 23.67% increase year over year. These numbers reflect profits before zakat and taxes, according to the Saudi Central Bank, or SAMA.
A total of SR73.28 billion was made by banks from the start of the year to the end of October, as opposed to SR64.47 billion during the same time in 2023. Several positive factors that emphasise the sector’s resilience and strength are largely responsible for the rise in banks’ profits. The third quarter of 2024 was a pivotal period, and non-interest income was a key factor.
As per the November 2024 report by Fitch Ratings, the combined quarterly profits reached SR20 billion thanks to strong gains on securities and trading, which offset higher financing impairment charges and contributed SR1.4 billion to non-interest income.
This growth occurred following SAMA’s September 2024 decision to lower interest rates by 50 basis points, which reflected the United States Federal Reserve’s move toward a more accommodating monetary policy.
Bank returns on loans had previously been supported by the rising interest rate environment that had recently characterised much of the Gulf region, as higher borrowing costs resulted in higher financing activity revenue. This dynamic did, however, also raise funding costs, especially for external liabilities and savings accounts.
In order to overcome these obstacles, a number of Saudi banks diversified their funding sources, tapped into outside markets, and issued a record USD 13 billion in debt in the first eight months of 2024 to satisfy the rising demand for foreign-currency financing, especially for gigaprojects.
According to Fitch Ratings, despite these initiatives, deposit growth in the third quarter of 2024 trailed previous quarters, indicating the sector’s deliberate shift toward outside funding to maintain its growth.
New dynamics have been introduced into the financial landscape by the United States Federal Reserve’s recent change in monetary policy, which affects rates in Saudi Arabia because the riyal is pegged to the dollar.
The Federal Reserve reduced interest rates by 50 basis points in September after a period of aggressive rate hikes to fight inflation. This was followed by two 25 basis point reductions in November and December of 2024, indicating a focus on accelerating economic growth as inflation subsided to manageable levels.