Saudi Capital Market Authority Limits External Investments to Bolster Domestic Banking Liquidity

This directive is a strategic move to bolster domestic liquidity, impacting the broader financial stability of the Gulf region.

• On September 20, 2026, the Saudi Capital Market Authority (CMA) issued a directive limiting external investments by public money market funds to 5% of net asset value.
• An estimated $7 billion will be redirected toward the domestic banking system to support internal liquidity for Vision 2030 projects.
• The policy includes a phased implementation over two years, allowing for a gradual transition to minimize market disruption.

• Saudi banks are under pressure, with a loan-to-deposit ratio reaching 108% by the end of 2025, necessitating increased external borrowing.
• External liabilities accounted for 12.6% of total bank obligations, highlighting the need for stable funding amid regional tensions.
• The CMA's directive aims to reduce reliance on external funding while enhancing the resilience of the domestic banking sector.

The Saudi Capital Market Authority's (CMA) recent directive is a calculated response to the structural pressures facing the Saudi banking sector. With loan-to-deposit ratios exceeding 108% by the end of 2025, banks have been compelled to seek external funding, leading to a significant increase in external liabilities. This situation has created a precarious balance, as the need for stable, low-cost funding for large-scale domestic projects under Vision 2030 has intensified.

The CMA's directive mandates a gradual reduction of external holdings by public money market funds to a maximum of 5% of net asset value. Funds exceeding this threshold are required to comply within six months, while no new external investments will be permitted beyond the cap. This policy is designed to redirect an estimated $7 billion (or 27 billion SAR) back into the domestic banking system over a two-year transition period. Analysts from Bank of America, Arqam Capital, and Al Rajhi Capital have projected this redirection, emphasizing the importance of investment-grade counterparties for any remaining external assets to mitigate risks.

Simultaneously, the Saudi Central Bank (SAMA) has taken steps to repatriate assets from international managers, withdrawing billions from firms managing Saudi investments. This dual approach aims to enhance liquidity within the domestic banking system, providing local banks with access to lower-cost funding that can support credit expansion and infrastructure projects critical to Vision 2030.

The phased implementation of this policy is crucial. By allowing a two-year transition, the CMA seeks to minimize disruption in the financial markets. This approach not only addresses immediate liquidity concerns but also reinforces the long-term stability of the banking sector. As local banks gain access to more stable funding sources, they can better support the financing needs of the economy, particularly in light of ongoing regional tensions and the necessity for robust domestic investment.

• Local banks: Gain access to lower-cost, stable funding for credit expansion.
• Investors in money market funds: May experience modestly lower yields compared to previous external placements.
• Vision 2030 project stakeholders: Benefit from enhanced liquidity to support infrastructure and development projects.

• Banking sector performance: Monitor loan-to-deposit ratios and credit expansion metrics to gauge the effectiveness of the policy.
• Investor sentiment: Watch for shifts in money market fund yields and investor behavior in response to the new limits on external investments.
• Regional financial stability: Assess how this liquidity redirection impacts broader Gulf Cooperation Council (GCC) financial markets.