Saudi CMA Directs 7 Billion USD to Domestic Banking System through Investment Localization

This directive aims to stabilize Saudi Arabia's banking system while addressing the challenges posed by external borrowing and geopolitical risks.

• On September 20, 2026, the Saudi Capital Market Authority (CMA) mandated public money market funds to limit foreign investments to 5% of net asset value.
• Approximately 7 billion USD is projected to be redirected to the domestic banking system over the next two years as a result of this measure.
• The Saudi Central Bank (SAMA) is also repatriating assets managed by international firms to enhance local liquidity.

• Saudi banks are under pressure, with a loan-to-deposit ratio of 108% and external liabilities reaching around 650 billion SAR, prompting a need for stable domestic funding.
• Vision 2030 projects require significant financing, necessitating a shift from reliance on international borrowing to local liquidity sources.
• Geopolitical tensions in the region have increased financing costs, making it essential for Saudi Arabia to mitigate risks associated with external debt.

The Saudi Capital Market Authority's (CMA) recent directive is a strategic response to ongoing liquidity strains within the Kingdom's banking system. By capping foreign investments at 5% for public money market funds, the CMA aims to redirect substantial capital back into domestic banks, which are currently facing a precarious loan-to-deposit ratio of 108%. This situation has been exacerbated by rising external liabilities, which account for a significant portion of total bank obligations, as highlighted by IMF estimates.

The CMA's directive is complemented by actions from the Saudi Central Bank (SAMA), which has initiated withdrawals of billions of USD from assets managed by international firms. This dual approach is designed to bolster domestic liquidity and reduce the Kingdom's reliance on external borrowing, which has been increasingly costly due to regional geopolitical tensions. The projected redirection of approximately 7 billion USD (or 27 billion SAR) into the local banking system is expected to provide a more stable funding environment for Vision 2030 projects, which are critical for the Kingdom's long-term economic diversification goals.

The phased implementation of these measures allows for a two-year transition period, during which funds exceeding the foreign investment cap must adjust their portfolios. This gradual approach is intended to minimize market disruptions while ensuring compliance with the new regulations. The CMA has also restricted remaining foreign assets to investment-grade counterparties, further emphasizing risk mitigation.

While the immediate impact on money market fund investors may be a modest reduction in yields compared to previous external placements, the long-term benefits of enhanced domestic liquidity and reduced external funding vulnerabilities are significant. By fostering a more stable banking environment, Saudi Arabia aims to support its ambitious infrastructure and development projects, ultimately contributing to the broader goals of Vision 2030.

• Domestic banks: Gain access to stable, low-cost funding sources.
• Public money market fund investors: May experience lower yields due to reduced foreign investment opportunities.
• Vision 2030 project stakeholders: Benefit from improved financing conditions for infrastructure and development initiatives.

• Compliance timelines: Monitor how quickly public money market funds adjust to the new foreign investment cap and the potential market reactions.
• Impact on loan-to-deposit ratios: Watch for changes in Saudi banks' ratios as redirected liquidity stabilizes the banking system.
• Geopolitical developments: Keep an eye on regional tensions that could influence financing costs and the overall economic environment in Saudi Arabia.