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✍️By Yassir Nazih Executive SummarySaudi Arabia’s banking sector continued to demonstrate strong capitalization by the end of Q3 2025, with average total capital adequacy reaching 20.04%, well above the 8% minimum regulatory threshold under Basel III. These levels were supported by robust operating profitability, solid asset quality, and low non-performing loans, in addition to the Saudi Central Bank’s (SAMA) conservative supervisory framework. The indicators collectively confirm the sector’s ability to absorb risks and sustain credit expansion while maintaining comfortable liquidity and solvency buffers. ◆ All Saudi banks exceed Basel III capital requirements with comfortable buffers. ◆ Retained earnings rose 20% YoY, supporting Tier 1 capital. ◆ Liquidity remains strong, with LCR ratios ranging between 120% and 260%, averaging 160%. ◆ Asset quality improved, with NPL ratios between 0.76% and 1.4%, depending on the bank. These indicators underscore the Saudi banking sector’s position as one of the strongest in the region—supported by a solid capital base, sustainable profitability, and an advanced supervisory framework that reinforces the Kingdom’s financial stability.  Capital adequacy is a cornerstone of financial system stability. It measures banks’ ability to absorb unexpected losses and maintain business continuity without putting depositors’ funds at risk. In an environment of accelerating economic change and global uncertainty, these indicators are increasingly important, particularly in emerging markets. Basel III Framework: Global Standards The Basel III framework emerged as a key regulatory reform following the 2008 global financial crisis. It aims to strengthen banking-sector resilience by increasing the level and quality of capital, limiting leverage, and improving liquidity. The framework is designed to ensure banks can absorb economic shocks while enhancing risk management across capital and balance-sheet structures. Basel III rests on three main capital components intended to reinforce capital quality and loss-absorption capacity. ➤ Tier 1 capital, composed largely of Common Equity Tier 1 (CET1), is the highest-quality capital because of its direct ability to absorb losses and support financial stability. This category also includes Additional Tier 1 (AT1) instruments, which absorb losses through conversion or write-down when needed. ➤ Tier 2 capital includes reserves and long-term subordinated instruments that provide an additional layer of protection against unexpected shocks. The combination of these components enhances overall capital quality and strengthens banks’ ability to meet regulatory requirements for capital adequacy. Basel III Minimum Capital Requirements Basel III sets a series of minimum capital thresholds designed to enhance banks’ resilience and ensure financial-system stability. These include: ➤ CET1: 4.5%, the highest-quality capital given its direct loss-absorption capacity. ➤ Tier 1 Capital: 6%, combining CET1 and AT1 instruments to reinforce solvency. ➤ Total Capital: 8%, including Tier 2 instruments as an additional buffer. In addition, the framework requires a 2.5% Capital Conservation Buffer, intended to create supplementary buffers that can be drawn down during periods of financial stress. Saudi banks significantly exceed these thresholds, reflecting strong regulatory compliance and a high capacity to absorb shocks. 
Saudi Bank Performance By the end of Q3 2025, the Saudi banking sector maintained strong capitalization, with average total capital adequacy at 19.8% versus the 8% minimum plus supervisory buffers. Tier 1 capital stood at a robust 18.1%, supported by growth in operating profits and ongoing improvements in capital quality through a greater emphasis on high-quality core capital.
Advanced performance indicators for the Saudi banking sector as of September 2025 reflect continued strength in financial positions and effective liquidity and risk management. The sector recorded an average Liquidity Coverage Ratio (LCR) of 159.7%, while the loan-to-deposit ratio (LDR – SAMA basis) stood at 80.45%, underscoring banks’ ability to fund loan-portfolio expansion without exerting pressure on liquidity. In terms of stable funding, banks reported an average Net Stable Funding Ratio (NSFR) of 113.7%, reflecting solid medium- and long-term funding capacity. Asset quality also remained resilient, with the non-performing loan (NPL) ratio at 0.99%, supported by conservative underwriting policies and high provisioning levels, with coverage ratios typically ranging between 150% and 200%. On profitability, banks delivered an average return on assets (ROA) of 1.87%, while return on equity (ROE) reached 15.41%, highlighting strong operating efficiency and continued earnings growth driven by higher operating income. Taken together, these indicators show that the Saudi banking sector maintains a high degree of resilience across capital, liquidity, and asset quality, positioning it to withstand economic volatility and support future growth while keeping risk levels stable. 
Liquidity and Asset Quality: Balancing Strength with Disciplined Management The financial performance of Saudi banks for the period ending September 2025 demonstrates a well-calibrated balance between ample liquidity and stable asset quality—two of the most critical pillars underpinning the system’s resilience. The sector maintained comfortable liquidity buffers, with an average LCR of 159.7%, while the NSFR remained well above regulatory thresholds, indicating a robust and efficient stable funding base. On the asset-quality front, the sector posted a low NPL ratio of 0.99%, supported by conservative credit standards and strong provisioning levels in line with IFRS 9 requirements, along with high coverage ratios that enhance banks’ capacity to absorb potential losses. Prudent loan-growth strategies and the expansion of loan portfolios also helped preserve a healthy balance between growth and risk, enabling continued support for economic activity without compromising the quality of credit books. The combination of these two factors—strong liquidity and robust asset quality—forms a core pillar of the Saudi banking sector’s ability to sustain efficient credit growth while maintaining a solid risk-management framework that provides additional protection against macroeconomic volatility. 
Saudi banking sector performance – Strong indicators Financial data for Saudi banks as of September 2025 show notably strong capital positions across the sector, with total capital adequacy ratios ranging between 17.81% and 21.86% for most banks—an indication of comfortable capital buffers. Banque Saudi Fransi (BSF) topped the sector with a total capital adequacy ratio (CAR) of 21.86%, followed by Al Rajhi Bank at 21.11%, while Riyad Bank recorded the lowest ratio at 17.81%. Regarding the performance of leading banks, Saudi National Bank (SNB) posted a Tier 1 ratio of 19.55% and a CAR of 20.77% as of the end of September 2025—both exceeding the sector average. The bank relied on a sizeable capital base of SAR 157.20 billion (CET1 + AT1) against risk-weighted assets totaling SAR 804.10 billion. Al Rajhi Bank likewise delivered strong capitalization indicators, with a Tier 1 ratio of 19.73% and a CAR of 21.11%, supported by a capital base of SAR 132.21 billion versus risk-weighted assets of SAR 670.16 billion. This performance confirms that strong capitalization is not limited to a single bank but is a broader sector-wide characteristic. Conversely, sector data showed that five banks recorded Tier 1 ratios below the sector average, with Riyad Bank posting the lowest at 15.78%. Additionally, five banks registered CARs below the sector average, with Riyad Bank again at the bottom at 17.81%. In terms of capital instruments, several mid-sized and smaller banks strengthened their capitalization through Tier 2 issuance, with total Tier 2 sukuk rising to SAR 182.47 billion, up 86% from SAR 97.99 billion in the same period last year. Tier 1 issuance also grew to SAR 113.10 billion, an increase of 58% compared to SAR 71.71 billion a year earlier. Overall, these indicators confirm that the Saudi banking sector maintains capital levels that significantly exceed regulatory requirements—across CET1, Tier 1, and CAR—supporting its ability to withstand economic pressures and confidently sustain future credit growth. Retained Earnings – When Returns Transform Into a Reserve of Confidence: A 20% growth in retained earnings is not merely an accounting increase in a line item within shareholders’ equity; it reflects an institutional orientation that places capital sustainability at the heart of the banking sector’s strategy. Every riyal preserved as retained earnings becomes an additional layer of protection that strengthens the Tier 1 capital and enhances banks’ capacity to finance future growth without excessive reliance on new capital issuances or assuming additional funding costs. It is a clear paradox: real strength does not come solely from dividend distribution, but from the ability to balance immediate returns with building a long-term reserve of confidence and financial resilience. Sector data for TASI-listed banks clearly reflects this reality. Retained earnings for Saudi banks rose to around SAR 109.09 billion by the end of Q3 2025 (+20%), compared with SAR 90.96 billion in the same period last year. Al Rajhi Bank accounted for the largest share—about 26% of total retained earnings—at SAR 29.86 billion, followed by SNB with nearly 20% and retained earnings of SAR 21.50 billion. This highlights the pivotal role of these leading banks in strengthening the sector’s internal capitalization, enhancing its shock-absorption capacity, and supporting future credit growth with greater stability. 
An analysis of the recent trend in cash dividends and retained earnings among Saudi banks listed on the Saudi market shows a more balanced approach between maximizing shareholder returns and strengthening internal capital buffers. Dividend payout ratios remained elevated, generally ranging between 45% and 55%, though the average declined from around 51% in H1 2024 to about 46% in H1 2025. This reflects a gradual shift by some banks—most notably Al Rajhi Bank—toward reducing cash payout ratios from previous levels in favor of stronger capitalization, while other banks maintained relatively stable distribution patterns. Meanwhile, Bank AlJazira continued to report no dividend distributions during the period, according to the available data.
Net Financing Investments (Net Loans & Advances) / Customer Deposits – SAR bln
An analysis of net financing investments (net loans and advances) compared with customer deposits as of the third quarter of 2025 reflects a strong level of credit activity among Saudi banks. Aggregate customer deposits reached SAR 2.93 trillion, while net financing investments amounted to SAR 3.11 trillion, resulting in a sector loan-to-deposit ratio (LDR) of 106%. This indicates continued outpacing of financing relative to deposits and a higher reliance on funding sources beyond traditional deposits. At the bank level, Al Rajhi Bank and SNB topped the list in terms of their share of net customer deposits among listed banks, jointly accounting for around 45% of total net customer deposits and 48% of net financing investments (net loans and advances). Both recorded a high ratio of net financing investments (net loans and advances) to deposits of 113%. Among mid-sized banks, Riyad Bank and SAB each held an 11% share of total net customer deposits, while Alinma Bank accounted for 8%. They recorded considerably varied ratios of net financing investments (net loans and advances) to deposits, exceeding 113% for Riyad Bank but remaining below 100% for Saudi Awwal Bank (SAB) and Alinma.
By contrast, smaller banks such as Bank AlJazira, Bank Albilad, and Arab National Bank (ANB) showed lower market shares—between 3% and 7%—as well as ratios of net financing investments (net loans and advances) to deposits below 95%, indicating a stronger concentration in deposits and liquidity relative to their lending activity.
Loan-to-Deposit Ratio (Financing Investments / Deposits) – LDR (SAMA) The loan-to-deposit ratio (LDR – SAMA) is a key measure used to assess a bank’s ability to fund its loan portfolio based on its deposit base, incorporating regulatory adjustments set by the Saudi Central Bank. The ratio is calculated using net financing investments (net loans and advances) against customer deposits after applying maturity-weighted financing exposures, adding long-term financing, and excluding items such as central bank transactions. The sector average reached 80.45% by the end of Q3 2025—reflecting a balance between credit expansion and comfortable liquidity levels. An analysis of bank performance reveals clear differences in deposit utilization levels. Riyad Bank recorded the highest ratio in the sector at 84.1%, reflecting elevated credit activity relative to its deposit base. It was followed by Saudi National Bank (SNB) at 82.8% and Saudi Investment Bank (SAIB) at 81.5%, all above the sector average. Al Rajhi Bank achieved 81.2%, supported by a large financing portfolio and strong credit demand, while Alinma Bank, Saudi Awwal Bank (SAB), and Arab National Bank (ANB) operated close to the sector average, with ratios ranging between 78% and 80.1%, indicating a relatively balanced credit growth against deposits. In contrast, banks with larger liquidity surpluses — including Bank AlJazira (73.6%) and Bank Albilad (77.5%) — recorded below-average ratios, reflecting abundant deposits relative to lending activity, which provides higher liquidity buffers and greater capacity to meet credit demand without funding pressures. These variations indicate that larger banks tend to operate with higher deposit utilization to support credit growth, while smaller banks maintain more conservative liquidity levels. Overall, the sector’s stable average of 80.45% underscores the ability of Saudi banks to balance credit expansion with comfortable liquidity levels, in line with Saudi Central Bank (SAMA) requirements. 
Impact of Dividend Policy on CET1 Every riyal distributed as dividends reduces Common Equity Tier 1 (CET1) capital by the same amount, thereby lowering the CET1-to-RWA ratio. Dividend policy is a key factor influencing the strength of CET1 capital in Saudi banks. Retaining a larger portion of earnings increases the capital base and supports capital adequacy without the need for new equity issuance. Sector data for Q3 2025 showed that banks with moderate dividend policies recorded higher retained earnings growth, positively impacting CET1 levels, whereas banks with higher payout ratios experienced relatively slower growth in core capital (T1 capital). Aggregate retained earnings for the sector rose to SAR 109.09 billion (+20%), bolstering CET1, particularly among large banks that hold the largest share of these earnings. This underscores that balancing shareholder returns with capital sustainability is crucial for banks to manage risk-weighted asset growth and support credit expansion. The impact is calculated as: Dividends Paid / Risk-Weighted Assets (RWA).
The impact of dividend distributions on the CET1 ratio – H1 2025 was as follows:
Results for Saudi listed banks in the first half of 2025 show that cash-dividend policies had a direct influence on the development CET1 capital, with the size of distributions affecting banks’ ability to strengthen their capital base, particularly as RWA continued to grow across most banks. Data indicated that banks maintaining high payout ratios recorded the largest downward pressure on CET1. (SNB) posted the biggest impact at -0.74%, followed by Riyad Bank at -0.56% reflecting payout levels close to half of net profit. Al Rajhi Bank recorded a smaller impact of -0.45%, attributable to its more conservative payout approach in H1 2025, which supported continued retained-earnings growth and strengthened its internal capital base. Other banks — including (BSF), (ANB), (SAB), Alinma Bank, and (SAIB) — fell within a relatively narrow range of impacts between -0.53% and -0.58%, consistent with stable cash-dividend levels that vary according to profitability and the size of RWAs. These results highlight that dividend policy has become a key differentiator in banks’ capital-strength profiles. Banks that reduce or maintain moderate payout levels tend to achieve stronger CET1 enhancement compared to those allocating a larger share of profits to shareholders. This underscores the importance of balancing short-term returns with long-term capital sustainability, particularly during a period of expanding lending and rising RWAs. The capital-adequacy ratio reflects a complex mix of operational and financial indicators. 
Saudi Banking Sector: Outperforms Global Benchmarks The first nine months of 2025 reaffirm the strength and resilience of the Saudi banking sector, underpinned by an exceptional capital base that exceeds global standards and supported by comfortable capital buffers that enhance banks’ ability to face risk. Backed by strong asset quality, stable liquidity, and solid operating profitability, Saudi banks maintained an average total Capital Adequacy Ratio (CAR) of 19.8%, well above Basel III requirements. Elevated liquidity levels—reflected in LCR ratios ranging from 120% to 260% (average 160%)—and persistently low NPL ratios below 1.5% continue to support the sector’s capacity to withstand shocks and expand lending prudently. With ongoing progress in digital transformation and enhanced regulatory compliance under SAMA, the banking sector continues to play a central role in supporting economic growth, financing national-transformation projects, and advancing Vision 2030—cementing its status as one of the region’s most stable financial pillars. Analysis of Additional Capital Buffers and Strength of CET1 Under Basel III, additional capital buffers are a critical element in ensuring banks maintain sufficient Common Equity Tier 1 (CET1) to absorb unexpected losses and sustain operations through economic cycles. These buffers include the Capital Conservation Buffer, the Countercyclical Buffer, and the Systemic Importance Buffer applied to systemically important banks—all of which sit above the 4.5% minimum CET1 requirement. Analysis of CET1 surpluses above minimum requirements shows clear differentiation in capital strength across banks. Arab National Bank (ANB) reports the highest surplus at 9.2% of risk-weighted assets. It was followed by SNB (8.4%), BSF (8.2%), Al Rajhi (7.7%), and Bank Albilad (7.8%). Banks such as Alinma, SAIB, and SABB maintain comfortable surpluses between 6.2% and 6.9%. Bank AlJazira records the lowest surplus at 4.7%. Although all banks remain well above regulatory thresholds, this dispersion reflects differing degrees of capital conservatism and varying capacities to absorb shocks without approaching dividend-restriction zones. Banks with relatively lower buffers retain narrower protection, even if they remain above Basel minima, highlighting the need for more conservative capital planning given growth plans and lending ambitions. Buffers of Domestic/Global Systemically Important Banks (G-SIB / D-SIB) The systemic importance buffer is one of the most critical Basel III components. It strengthens the resilience of large banks whose size, interconnectedness, and market share mean that severe stress at these institutions could pose systemic risks. Regulators—including SAMA—require such banks to maintain additional capital above the baseline to reduce the likelihood of system-wide disruptions. Data indicates that Saudi banks classified as systemically important—such as SNB, Al Rajhi, and other large banks like BSF and Riyad Bank—carry higher additional buffers, typically ranging between 0.5% and 1.5%, depending on their D-SIB classification. Smaller banks, including AlJazira, SAIB, and Albilad, have relatively lower buffers due to their limited systemic importance, reflecting their lower systemic impact, though they still operate with comfortable capital cushions. Over time, these buffers have trended upward for major banks as balance sheets expand and interconnectedness increases, alongside periodic updates to SAMA’s systemic-importance methodology. This upward recalibration signals stronger loss-absorption capacity, more durable capital positioning, and improved creditworthiness—while enabling expansion without nearing Basel’s critical thresholds. For G-SIB/D-SIB banks, Riyad Bank, SABB, and BSF maintain a constant systemic buffer of 0.5%. Al Rajhi increased its buffer significantly from 0.5% in Q4 2024 to 1% in Q1 2025. Meanwhile, SNB holds the highest buffer in the sector, rising from 1.5% in Q4 2024 to 2% in Q1 2025. Smaller banks—AlJazira, Albilad, SAIB, ANB, and Alinma—maintain a zero buffer across all periods. This upward evolution for SNB and Al Rajhi reflect their reclassification toward higher systemic importance and translate into higher CET1 requirements, bolstering their ability to absorb potential losses without external support. Overall, the systemic-importance buffer reinforces stronger capital discipline at large banks, lowers the probability of future government intervention, strengthens investor confidence, and enhances the ability of well-capitalized banks to expand credit sustainably. It also gives highly capitalized banks greater resilience to expand lending and finance future activities, along with a stronger ability to sustain dividend distributions, while supporting their credit ratings and reinforcing their financial position over the long term.
Distribution of Risk-Weighted Assets (RWA):
Analysis of RWAs highlights a clear divergence in bank sizes within the sector. Saudi National Bank (SNB) leads with RWAs exceeding SAR 800 billion (RWA of SAR 804 billion), followed by Al Rajhi Bank at approximately SAR 670 billion, Riyad Bank around SAR 460 billion, and SAB at about SAR 380 billion. Mid-sized banks such as BSF, ANB, and Alinma operate in the SAR 250–270 billion range, while smaller banks like AlJazira, Albilad, and Saudi Investment Bank (SAIB) hold RWAs near SAR 120–125 billion. This size gradient influences each bank’s regulatory weight, required capital levels, and the magnitude of additional buffers applied to systemically important banks. The Growth of Saudi Banks’ Sukuk Issuances as a Tool to Strengthen Capital Adequacy The Saudi sukuk market witnessed significant growth in 2025, with Saudi banks’ total equity-based sukuk issuances reaching SAR 113.1 billion by the end of Sept. 2025, up 58% compared to around SAR 71.71 billion in Sept. 2024. This growth reflects the banks’ move to diversify funding sources in line with the continued increase in lending, which outpaced the deposit growth. This came in addition to their efforts to strengthen capital adequacy levels under Basel III requirements through issuing additional Tier 1 (AT1) and Tier 2 (T2) instruments. Banks further leveraged a supportive funding environment and strong confidence from both local and international investors, which accelerated the pace of issuances and reinforced the role of sukuk as one of the most important tools for funding and capital-base enhancement in the Saudi banking sector.  Accordingly, the sukuk market has become a strategic tool for strengthening the Saudi banks’ capital base and supporting the sustainability of their credit growth within comfortable solvency levels.
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