The Other Side of the Desk

TABLE 1 — H1 2026 net profit, listed banks

‍

CHART 1 — Earning more, lending less

Let's start with a key figure that much ofJuly's coverage got wrong. Several reports indicated that bank credit was"up 16.2 percent year-on-year" — a figure that actually correspondsto May 2025, not May 2026. According to SAMA's May 2026 bulletin, credit to theprivate sector stands at SR3.2 trillion, reflecting only 6.6 percentyear-on-year growth. The real story lies in this deceleration: credit growthwas consistently between 16 and 18 percent for much of last year, slowed toaround 8 percent by March, and further decreased to 6.6 percent by May, holdingat 6.8 percent in June. From January to May, lending grew by only 2.2 percent,less than half the pace observed during the same period in 2025.

So how did banks report record profits while lendingslowed down significantly? The impact of the slowdown was not evenlydistributed; it mostly affected one type of borrower: households.

‍

CHART 2 — Two borrowers, two directions

‍

In May, new residential mortgages amountedto SR4.4 billion, a significant decrease from SR9.96 billion a year earlier.This marks the weakest performance for May since 2018. In contrast, corporatecredit continues to grow: business lending has increased its share of theoverall loan portfolio for over a year, reaching 55.4 percent of all credit byMay 2025, up from 52.9 percent. Corporate lending is growing at twice the rateof personal lending. The same tilt appears in small-business credit: facilitiesto micro, small and medium enterprises reached SR420.7 billion by mid-2025, up37 percent year on year, with banks providing 94.7 percent of it.

In simple terms, over the past eighteen months, theSaudi financial landscape has gradually shifted from focusing on households toprioritizing businesses. For those selling to consumers, this shift presents ademand challenge that may be evident before it reflects in retail data.Conversely, if you are borrowing as a company, you are now the customer thatbanks are eager to attract.

‍

‍

If you sell to consumers: the early warning

Household credit serves as a leadingindicator of household spending. The recent mortgage collapse has alreadyimpacted the property market, with villa prices dropping by 9.7 percent overthe year ending in June, despite a 1.3 percent increase in the overall realestate index. Moreover, sales data from July has shown weakness across mostcategories. In response, the state has launched a first-time homebuyer program lastmonth "Alternative Financing" with REDF, SNB, and NHC, withinstalments starting at SR699 per month to deliberately revive the mortgagemarket.

While we wouldn't classify this situation as afull-blown consumer downturn just yet—since unemployment remains at a recordlow of 2.8 percent, and summer travel is generating spending that willpartially continue—businesses planning for 2027 based on 2024's credit-drivengrowth expectations may find themselves operating in a market that is no longerrelevant. The reality is that demand is shifting from credit-financed purchasesto consumption based on salaries, and the companies that adapt first will have themost pricing power.

‍

‍

If you borrow: this is the window

For corporate borrowers, the first half ofthe year reflects unusually favorable conditions for three key reasons. First,banks have capital to deploy. Deposits have grown faster than loans in thefirst quarter, with a growth rate of 3.9 percent compared to 1.6 percent forloans. This dynamic has pulled the sector's loans-to-deposits ratio down from106.5 percent to 104.1 percent, according to analysts' definitions. Meanwhile,SAMA’s regulatory ratio, which considers stable funding more broadly, is near79 percent. Both ratios are accurate as they measure different aspects.Additionally, funding costs have eased, and roughly 100 basis points in ratecuts are expected by the end of 2026 as SAMA monitors the Federal Reserve.

Second, this appetite for lending isevident in real transactions, not just aggregate numbers. Recently, SaudiEnergy signed a SR15.8 billion, seven-year unsecured Murabaha facility withseven local banks for general corporate purposes. This indicates that suchfavorable terms are typically offered at the beginning of a lending cycle, notat the end.

Third, banks are not the only players inthe market. Saudi issuers raised $49.3 billion in bonds and sukuk during thefirst half of the year, accounting for 48 percent of all GCC issuance.Corporates, rather than sovereign entities, made up nearly two-thirds of theregion's total. The sovereign itself utilized July to retire SR17.1 billion ofnear-term sukuk while reissuing bonds with maturities extending to 2041,strategically lengthening its debt profile while demand is strong. Companiescan view this as a model for their own funding strategies.

The practical conclusion is this: If your plansinvolve debt, expansion, acquisition, or refinancing, the terms available inthe next two to three quarters are likely to be the best of this cycle. Banksare competing for quality corporate risks precisely because the mortgagesector, which once absorbed their liquidity, has stalled. Opportunities likethis may close without warning.

‍

‍

The overlooked line: your idle cash

One often-overlookedconsequence of the deposit race is that banks now prioritize deposits almost asmuch as they do borrowers. As banks compete for stable funding, term depositshave seen significant growth, particularly with the government's retail sukukprogram offering a rate of 4.70 percent as of August. This rate effectivelyserves as the Kingdom's risk-free retail benchmark, influencing the pricing ofmany financial products. For a corporate treasury maintaining substantialbalances in current accounts, this means they are essentially giving uppotential earnings to their bank. With an average idle balance of SR50 million,the difference between earning zero interest and securing a negotiated depositrate represents a substantial amount of money. In the first half of the year,banks' own results indicate that they are in a position to pay these higherrates. SAMA's June data show the shift is already under way: time and savingsdeposits rose 25 percent year on year to SR1.375 trillion, while demand depositsfell 3.2 percent.

‍

‍

TABLE 2 — What the H1 results say / What we would do