Saudi Arabia Retail Banking Market - Growth, Trends, COVID-19 Impact, and Forecasts (2023-2028)

Saudi Arabia Retail Banking Market is expected to achieve a CAGR of 6% during the forecast period. The impact of the COVID-19 pandemic on Saudi Arabian banks has been contained, while pressures on the operating environment have eased, and the economic activity is gradually recovering, supported by higher oil prices.

Retail banking volumes are high in Saudi Arabia, and the market provides customers with a full range of financial products. This market grew by 6.3% Y-o-Y for the first nine months of 2021 to SAR 10.54 billion (USD 2.80 billion), while its net income decreased slightly by 3.2% Y-o-Y to SAR 4.5 billion (USD 1.20 billion). Meanwhile, in the third quarter, the net income of the retail banking market increased to SAR 1.36 billion (USD 0.36 billion), registering an increase of 22.9% Y-o-Y.

Retail lending has been a high-growth segment in Saudi Arabia in recent years and a key driver behind the banking sector’s growth. While it mitigated the impact of the COVID-19 pandemic on Saudi Arabian banks' financial profiles, risks are emerging. Retail lending has historically been ignored by many Saudi Arabian banks but has expanded significantly recently and is now the primary engine of credit growth. The fast growth in this segment is expected to continue, underpinned by strong credit demand and support from government authorities. Various factors support the high growth, including strong margins on retail products and the Saudi government placing homeownership at the center of its Vision 2030 strategic plans. This has led to vast programs of government subsidies that boost margins and guarantees for retail mortgages.

Returns on retail portfolios are underpinned by unusually low funding costs, with retail loans largely funded by retail non-interest-bearing deposits (NIBs). The absence of caps on retail loan pricing also contributes to high margins. Therefore, banks with a more significant amount of retail lending have profitability metrics registering at the higher end. Saudi banks have been actively chasing retail lending, adjusting their strategies, and increasing their appetite for this segment.

Saudi Arabia Retail Banking Market Trends

Increase in Saudi Retail Mortgage Loans Driving the Market

Mortgage loans provided to retail and corporate clients by commercial banks in Saudi Arabia rose 36% Y-o-Y to SAR 533.5 billion (USD 141.9 billion) in Q3 2021 from SAR 392.1 billion (USD 104.3 billion) in the same period in the previous year, according to data issued by the Saudi Central Bank (SAMA). The huge increase in demand for mortgages is part of the Saudi government’s aim to increase homeownership in the country to 70% as part of its Vision 2030 targets, up from 50% in 2018.

Loans to retail clients, which account for 77% of total mortgage loans, jumped 48% to SAR 412.6 billion (USD 109.7 billion) in three months from SAR 279.2 billion (USD 74.2 billion) in Q3 2020. Corporate loans grew by 7% Y-o-Y to SAR 120.8 billion (USD 32.1 billion) in Q3 2021.

Rising Digitalization in Saudi Arabian Banking Sector is Driving the Market

The move towards digitalization was most evident in the granting of licenses to the two first fully digital banks in Saudi Arabia in 2020. The move included Saudi Telecom’s STC Pay being renamed STC Bank with a capital of SAR 2.5 billion (USD 0.67 billion) and Saudi Digital Bank (SDB) gaining a capital of SAR 1.5 billion (USD 0.4 billion). These new licenses embody the country’s desire to become a financial hub and increase the efficiency and penetration of its banking system. The impact of these digital banks is hard to gauge, but it is safe to assume that they will be appealing to the underbanked areas of Saudi Arabia, where established banks have few or no branches. With bank penetration at 72% but internet penetration forecast to reach 97% in 2025, digital banks have a clear target audience. Their sector-wide significance will likely come from spurring innovation among the country’s older banks and ensuring Saudi Arabian society is at the forefront of advancements within the (digital) financial system. STC Pay and SDB will fall under the same regulatory framework as other Saudi Arabian banks.

Saudi Arabia Retail Banking Market Competitor Analysis

The report covers major international players operating in the Saudi Arabian retail banking market. In terms of market share, a few major players currently dominate the market. However, with technological advancements and product innovation, mid-size to smaller companies are increasing their market presence by securing new contracts and tapping new markets. Companies including Al Rajhi Bank, Saudi National Bank, National Commercial Bank, Alinma Bank, Saudi British Bank, and others have been profiled in the report.

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