Evaluating Banking Efficiency in Saudi Arabia: A Comprehensive Analysis of Return on Assets and the Risk-Return Dynamics (2002–2022)

Abstract

The purpose of this study is to evaluate the banking efficiency of Saudi banks through a comprehensive analysis of 12 banking institutions operating within the Kingdom of Saudi Arabia, including 4 Islamic banks. The Return on Equity (ROE) index is utilized as a comprehensive model for performance evaluation, serving as a key metric to assess the reciprocal relationship between return and risk. The analysis places a strong focus on the dual impact of cost management efficiency and asset productivity on the overall profitability of assets, measured through the Return on Assets (ROA) index.The findings of this study reveal several critical insights into the financial performance of Saudi banks. Firstly, financial analysis is shown to be a fundamental tool in providing a detailed examination of the financial data presented in the statements of Saudi banking institutions. This in-depth analysis facilitates the interpretation of financial results and aids in identifying the strengths and weaknesses inherent in the financial policies employed by these banks. Secondly, banking efficiency across various operational dimensions reflects the bank’s capability to optimize production output through the effective use of available technology and resources. The results indicate that major Saudi banks exhibit strong financial performance, largely driven by profits resulting from effective cost management strategies and high productivity levels. In comparison, medium-sized banks demonstrate moderate financial performance, while recently established banks show relatively lower efficiency metrics. Overall, the analysis underscores the significance of aligning cost management with productivity enhancements to bolster profitability in Saudi banks. The insights gained from this study offer valuable perspectives on the financial stability and operational efficiency of both conventional and Islamic banks operating within the region.