New on Bondsupermart Live – Saudi National Bank SGD bonds with yields of over 3.5%!

Saudi National Bank (SNB) is the largest banking group in Saudi Arabia and one of the country’s most important financial institutions, with a strong franchise across both retail and corporate banking. The Saudi government also holds a significant stake (~37%) through its Public Investment Fund.

Broad-based growth: top-line growth complemented by strong cost management

Net special commission (NSC) income rose +5% y/y to SAR 29.2b, in line with previous guidance of low to mid-single-digit growth. This was driven by balance sheet expansion, with average interest-earning assets and cost-bearing liabilities both increasing by double-digit percentages (+11% / +10% respectively). This helped offset margin pressures, as NSC margins fell from 3.02% in FY24 to 2.87% in FY25 (-15 basis points [bps]); SNB also reported a +8% increase in its cost of funds.

(Note: Net special commission income is essentially the Islamic-banking equivalent of net interest income for conventional banks. NSC margins are hence broadly comparable to net interest margins.)

Meanwhile, fees and other income grew +21% y/y to SAR 10.0b, driven by multiple factors including higher investment income, FX income, and trade finance income. Brokerage income was one exception, declining likely due to weaker market activity. Overall, SNB’s revenue growth was fairly broad-based across both interest and non-interest income segments.

Turning to costs, SNB’s total operating expenses generally fell in FY25 while impairments held relatively steady. Total operating expenses before credit losses were SAR 9.9b, -10% lower y/y. Credit impairments were SAR 1.03b, just marginally higher (+1.5%) than the previous year’s SAR 1.02b.

As a result, the cost-to-income ratio dipped to 23.1% in FY25, significantly lower than 28.3% in FY24. Management also emphasised during the earnings call that a ‘material portion’ of the decline in operating expenses stemmed from cost-optimisation initiatives rather than one-off factors, and that these initiatives are expected to continue in future years.

Overall, SNB delivered record profits in FY25, with solid top-line growth complemented by strong cost management. Operating income rose +18% y/y to SAR 28.3b, while net income (after zakat and income tax) increased +18% y/y to SAR 25.0b.

Profit outlook – stable growth ahead, but with some risks

Looking ahead, SNB management appears to be guiding for slower but higher-quality growth in FY26. For instance, management guided for high-single-digit financing growth in FY26, below FY25’s +11%, while emphasising that the bank would focus on ‘capital-efficient and value-accretive growth being both selective and opportunistic’.

Meanwhile, we do not expect major interest margin improvements in FY26. On interest-sensitive segments, SNB’s guidance of mid-single-digit NSC income growth (FY25: +5%) relative to high-single-digit financing growth already implies some ongoing margin pressures. Management stated during the earnings call that it would manage margins through repricing and funding diversification, alongside potentially easing deposit competition as peer banks face similar headwinds. Nonetheless, we think it may be tough for NSC margins to improve substantially in the near term.

Turning to costs, SNB guided for continued progress on its ongoing efficiency initiatives. From its 23.1% cost-to-income ratio in FY25, management has guided for a ratio below 25% in FY26 and below 24% in FY27.

Nonetheless, SNB’s cost of risk is expected to trend upward from the 15 bps in 2025, to ’15 - 25 bps’ in 2026 and ’20 - 30 bps’ in 2027, This upward trend reflects SNB’s increased focus on SME lending as part of the country’s Vision 2030 strategy, though we will continue monitoring credit trends for signs of significant deterioration.

Apart from SNB-specific factors, investors should note that SNB’s financial metrics may also fluctuate alongside geopolitical developments. Management guidance was issued before the recent US-Iran conflict and incorporates some macroeconomic assumptions, such as steady real GDP growth (FY26 forecast: +4.7%), two US Federal Reserve rate cuts, and steady Brent oil prices of USD 63 in FY26. We elaborate further in the ‘Risks’ section below.

Risks for SNB relating to the US-Iran conflict

A wider regional shock, including the recent US-Iran conflict, could hurt SNB through weaker confidence, slower business activity, and tighter financial conditions. While higher oil prices could theoretically benefit Saudi fiscal revenues, a prolonged disruption would likely be more negative than positive for Saudi economic activity, including exports and consumer activity, and consequently for Saudi banks such as SNB.

Furthermore, SNB may be forced to recognise greater impairments or set aside additional provisions if conditions deteriorate. SNB’s 2025 credit costs looked relatively benign, and management had already indicated scope for normalisation before the conflict began. Depending on the severity of the situation, physical damage to assets or broader economic disruptions could lead to higher provisioning in FY26.

The conflict could also increase SNB’s cost of funds if customers demand higher interest rates to compensate for heightened geopolitical risks. Similarly, deposit outflows from Middle Eastern banks could occur, which would further increase funding costs. Ultimately, this would squeeze NSC margins at a time when margins are already under pressure.

We highlight, however, that SNB continues to benefit from Saudi government support as a backstop. As mentioned above, SNB is one of the Kingdom’s most important banks and is partially owned by its sovereign wealth fund, PIF. Furthermore, SNB by itself remains well-capitalised, as discussed in the next section. Therefore, we think these risks remain manageable assuming no significant deterioration in the regional situation.

(Note: As an additional supporting factor, a recent S&P report stated that Saudi Arabia has some ability to mitigate volatility from disruptions in the contested Strait of Hormuz by redirecting oil flows through the Suez Canal by virtue of its geographical location.)

Strong capital position & asset quality

SNB’s CET1 ratio strengthened to 17.7% at end-2025, up from 17.6% at end-2024. Meanwhile, its Tier 1 ratio also declined to 19.8% (end-2024: 20.3%) while total CAR rose to 21.2% (end-2024: 20.8%). Overall, SNB’s capital ratios provide a comfortable buffer against regulatory requirements. SNB is guiding a Tier 1 ratio of 19% - 20% in FY26, suggesting broadly stable capital levels. Broadly speaking, these ratios were supported by retained earnings and ongoing RWA optimisation, which we expect to continue in FY26 and beyond.

SNB’s asset quality remained strong in FY25. Its non-performing loans (NPL) ratio fell to 0.68% in 4Q25, declining from 1.16% in 4Q24. Management noted that this was partly helped by write-offs of exposures that had already been fully-provisioned. Provision coverage remained largely steady across Stage 1, 2, and 3 exposures when comparing FY25 to FY24.

SNB maintains strong access to funding across multiple sources. It can readily tap retail deposits by virtue of its strong domestic market share, while its strong investment-grade credit profile also supports access to wholesale funding markets. Recently, the bank has also tapped international funding markets. Of its customers’ deposits, a majority comes from CASA (current and savings accounts – 73%), which helps maintain relatively low funding costs.

Overall, we believe SNB maintains a strong capital position and sound asset quality. While geopolitical factors may introduce volatility in the coming quarters (e.g. due to higher provisioning required), we expect SNB to remain well-capitalised.

Bond comparison - SNBAB 3.400% 01Dec2035 Corp (SGD)

SNBAB 3.400% 01Dec2035 Corp (SGD) is a newly onboarded bond on Bondsupermart Live! This bond is a Tier-2 bank bond by SNB, maturing in December 2035 with a call date in December 2030. We compare these bonds against other Tier 2 SGD bonds in Table 1 below.

(Note: These Tier-2 bonds come with loss-absorption clauses, which allow Saudi Arabia’s regulator SAMA to partially or fully write-down these bonds at the point of non-viability. We do not expect equity conversion for these bonds.)

These SNB Tier-2 bonds are effectively the highest-yielding Tier-2 bonds in the SGD space, with yields marginally above another Middle Eastern peer (Riyad Bank, also based in Saudi Arabia). Apart from Riyad Bank, there is a clear differentiation in yields versus banks outside the Middle East, which generally yield under 3% (BPCE’s 2035 bonds are next-best at 3.09%).

These bonds may provide interesting opportunities for those comfortable with the volatility inherent in Middle Eastern names amidst the ongoing US-Iran conflict. Yields may move significantly depending on whether the situation improves or worsens. We also highlight that the SNBAB bonds are currently being priced to maturity rather than to reset, suggesting higher non-call risks than non-Middle Eastern Tier-2 bank bonds listed in Table 1.

Table 1: Bond comparison (SGD Tier-2 bank bonds)

Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) holds positions in SNBAB 3.400% 01Dec2035 Corp (SGD). The analyst who produced this report holds NIL positions in the abovementioned securities. This research report was prepared with the assistance of artificial intelligence (AI) tools. iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report – including all investment theses, ratings, price targets and conclusions – has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.