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RIYADH: Profits of Saudi Arabia’s 10 largest listed banks grew by 8 percent in the first quarter of 2024, reaching SR18.65 billion ($5 billion) compared to the same period last year.

The earnings growth can be attributed to several factors, including 11 percent growth in lending and a rising interest rate environment that has increased the cost of borrowing.

According to the latest data from the Saudi Central Bank, loans reached SR2.67 trillion at the end of March, a growth rate that outpaced deposits, which grew by 8%.

Meanwhile, a study by Kamco Invest found that Gulf Cooperation Council central bank data showed that despite higher interest rates, loan defaults in the region continued to rise in the first quarter of 2024.

This increase was due to widespread increases in all seven countries, highlighting the resilience of the financial sector. The strong expansion of credit reflects a broader trend of economic growth and investment in the Gulf region, demonstrating the strength and stability of its financial systems.

Their analysis showed that credit growth was strong compared to last year, with every country seeing significant growth. This strong lending growth reflects solid project pipeline as total contract awards in the GCC increased 20.3% year-on-year to reach $45 billion in the first quarter of 2024, up from $37.4 billion in the same period last year.

S&P Global forecasts strong bank lending growth in the Kingdom of 8 to 9 percent in 2024. This expansion is expected to be driven by corporate lending, driven by increased economic activity resulting from the Vision 2030 program.

In March, Moody’s Investors Service confirmed the positive outlook for Saudi Arabia’s banking sector. This approval was based on the Kingdom’s economic diversification programs and an increase in loans for low-risk government-backed projects. These initiatives are expected to improve credit performance and contribute to solid earnings in the banking sector.

Moody’s emphasized that Saudi banks have a low NPL ratio and have significant loss absorption capacity. Moreover, their capital ratios are among the highest in the Middle East region.

Additionally, the Saudi Arabian government and its related entities are expected to inject deposits into the banking system, thereby providing additional support to the credit expansion of financial institutions in the Kingdom.

During the quarter, Saudi National Bank recorded the highest profits among the top 10 banks, reaching SR5.04 billion, followed by Al Rajhi Bank, which had total profits of SR4.41 billion.

According to Forbes’ 2024 MENA list of the 30 most valuable banks, Saudi Arabia accounted for one-third of the entries, including 10 banks. Al Rajhi Bank continued to top the list, with its market value increasing by $21.7 billion over the past 12 months, reaching $96.6 billion.

Following closely behind is the National Bank of Saudi Arabia, which has a market value of $68.2 billion.

Despite Alinma Bank accounting for just 7 percent of total revenues of listed banks in the first quarter, Alinma Bank’s growth contributed significantly to overall growth. It recorded a 36 percent increase compared to the same period last year, reaching SR1.31 billion.

The bank attributed these positive results to an increase in net revenues from financing and investment activities, fees for banking services, revenues from the valuation of investments at fair value and other revenue streams.

According to S&P Global, Saudi banks are expected to adopt alternative financing strategies to cope with the rapid expansion of lending, driven by growing demand for new mortgage loans.

Even as the Saudi government and related entities are ready to inject deposits into the banking system, Saudi banks are expected to continue seeking to access international capital markets. This trend is expected to continue for the next three to five years.