Fitch: Saudi Banks’ Liquidity Is Adequate as Loans-to-Deposits Ratio Rises to About 114%

Key Facts

Fitch said Saudi banks are not facing a liquidity crisis, although liquidity abundance has diminished as credit growth outpaced deposit and money-supply growth. Bank credit reached 3.5 trillion riyals in September 2026, up 7% year on year, while both deposits and broad money grew by about 5%. This divergence pushed the non-regulatory loans-to-deposits ratio to about 114%, from 111% previously. An Enterprise report cited Fitch as saying liquidity remains adequate, while pointing to tighter funding conditions in the third quarter. This puts funding costs and the deposit mix at the forefront of challenges facing banks as credit continues to grow.

The pressure was reflected in data from listed banks, where customer deposits reached 3.09 trillion riyals at the end of the third quarter, up 4.7% from the same period a year earlier, but down 1.67% from the second quarter. The quarterly comparison shows deposits contracting during the quarter, despite continued year-on-year growth. In September, time and savings deposits rose 23% year on year as customers shifted to higher-yield products. By contrast, demand deposits, which cost banks less, fell 5%. Their share of total deposits declined to 46%, from 50% a year earlier, reflecting a shift in funding sources toward higher-cost deposits.

An official at Banque Saudi Fransi said lower government deposits and credit growth outpacing deposits contributed to the tightening seen in the third quarter. But he stressed that the link to the conflict or oil revenues was unclear, saying: "It is difficult to determine whether this is related to the conflict through oil revenues or something else, or simply the timing of spending, and I do not want to overstate that link." The official therefore did not directly attribute funding pressure to the war, but pointed to factors related to spending timing and deposit flows. He also said liquidity indicators remain strong and contingency funding plans are in place. He described the domestic banking sector as relying primarily on resident deposits.

Funding pressure indicators also date back to an earlier acceleration in credit; the International Monetary Fund said bank credit grew 11.5% in 2025, lifting the unweighted loans-to-deposits ratio to 112% as excess liquidity declined. In its assessment of the sector, the fund said banks have ample capital and liquidity, alongside a large base of domestic depositors and stable profitability. But a continued widening of the gap between loan and deposit growth could change how assets are funded and increase banks’ reliance on markets. In September, credit grew 7% year on year, compared with about 5% for deposits and broad money. These figures remain an indication of relative funding tightness, not an announcement of a liquidity crisis.

Fitch warned that continued credit growth outpacing deposits and the money supply could push banks to rely more on market funding or slow asset growth. It said: "If credit continues to grow faster than deposits and broad money, banks will have to rely more heavily on market funding or slow the growth of their assets." Reliance on market funding sources could raise the cost of funds and pressure banks’ margins. The rising share of time and savings deposits, alongside the decline in demand deposits, also increases the importance of banks’ ability to reprice funding. A report cited by Arab News from Alvarez & Marsal said the path of margins in the third quarter would depend on banks’ ability to maintain or expand net interest margins as benchmark rates fall and funding costs are repriced.

The IMF forecast broad money growth to slow to 5.2% in 2026, from 8.4% in 2025, and projected private-sector credit to grow 5.8% in 2026, after 10.2% in 2025. In its report on the Kingdom, the fund recommended that SAMA remain prepared to provide liquidity through its standing facilities and continue calibrating its operations to keep short-term interest rates stable around the policy rate. This approach defines the role of central-bank tools in addressing liquidity needs if pressures persist. The 2026 budget estimates total spending at 1.313 trillion riyals, including 240 billion riyals for the military sector; these are financial allocations that do not by themselves prove military spending caused the change in deposits. Monitoring credit and deposit growth and funding costs remains the next issue for banks amid these forecasts.