Saudi Arabia's banking sector is experiencing a surge in profitability, with aggregate bank profits reaching a 14-month high in May 2024. According to data released by the Saudi Central Bank (SAMA), the combined profits of Saudi banks hit SR7. 33 billion ($1. 96 billion) in May, reflecting a significant 16% increase year-on-year. This positive trend extends to the year-to-date figures as well. Banks have collectively recorded a total profit of SR34. 78 billion in the first five months of 2024, compared to SR31. 12 billion during the same period last year.
The upswing in profits coincides with a notable rise in mortgage lending activity. SAMA's data indicates a 13% year-on-year increase in new home loans issued in May. The value of these mortgages reached SR7. 67 billion, marking a 16-month high for the sector. Notably, housing loans comprised the majority (67%) of all new mortgages issued in May, although this represents a slight decline from the 69% share they held in the same month last year. This decrease is offset by a rise in apartment loans, which increased to 28% from 25% in May 2023. Land loans constituted the smallest segment of new mortgages at 5%, down from 6% the previous year.
Analysts attribute the positive performance of the banking sector to a combination of factors. The ongoing economic recovery in Saudi Arabia, driven by rising oil prices and government initiatives to diversify the economy, has created a more favorable lending environment. Additionally, the Saudi government's focus on promoting homeownership through schemes like the Sakani program has stimulated demand for mortgages. This increased demand, coupled with historically low interest rates, has incentivized banks to expand their mortgage portfolios.
The positive outlook for the Saudi banking sector is further bolstered by expectations of continued growth in the mortgage market. The housing sector in Saudi Arabia is undergoing significant development, with the government investing heavily in infrastructure projects and new residential communities. This ongoing expansion is likely to create sustained demand for mortgages, which will continue to benefit banks.
Looking ahead, the performance of the Saudi banking sector will be influenced by global economic developments. Rising interest rates in major economies could put upward pressure on borrowing costs in Saudi Arabia, potentially impacting loan demand. However, the fundamentals of the Saudi economy remain strong, and the government's commitment to economic diversification is expected to mitigate external risks. Overall, the outlook for Saudi Arabia's banking sector is positive, with continued profitability driven by a growing mortgage market and a supportive economic environment.