Saudi Arabian Monetary Authority: Its Role and Impact on the Financial Market

The Saudi Arabian Monetary Authority (SAMA) is the central bank of the Kingdom of Saudi Arabia, established in 1952 by royal decree. Since its inception, it has been entrusted with the responsibility of managing monetary policy, issuing the national currency (the Saudi Riyal), and overseeing the banking sector. The authority is the main regulator of the Saudi banking system, supervising local and foreign banks, and setting the regulations governing the sector, including capital, governance, and financial solvency. Its role also includes monitoring the stability of the national currency, as the Saudi Riyal is pegged to the US dollar at an almost fixed exchange rate (3.75 Riyals to the dollar), which supports economic stability and reduces inflation rates. The authority is responsible for granting licenses to banks and financial companies and plays an important role in setting international standards for the banking sector, working closely with the Ministry of Finance and the Capital Market Authority to ensure policy coherence.

SAMA relies on a set of tools to manage monetary policy in Saudi Arabia, the most prominent of which are controlling the key interest rates (Repo rate and Reverse Repo rate). These tools are used to adjust liquidity in the financial system, as raising or lowering interest rates directly affects the cost of borrowing for banks, and consequently the volume of lending and investment in the economy. SAMA strives to keep interest rates aligned with global economic conditions and local inflation, and it follows a policy of pegging the Saudi Riyal to the US dollar, which provides additional stability in the face of global exchange rate fluctuations. Additionally, the authority manages open market operations, monitors bank reserves, and provides liquidity when needed to avoid financial crises.

Foreign reserves play a crucial role in the strength of SAMA and its ability to face financial crises. By the end of 2023, the size of Saudi foreign reserves reached approximately 32,000 billion Saudi Riyals (about 8,533 billion dollars), one of the highest globally. These reserves allow the authority to intervene when necessary to maintain the stability of the Riyal against foreign currencies and support the economy in the event of external shocks. These assets are invested in highly liquid, low-risk financial instruments, such as US Treasury bonds, which enhance the financial position of the authority. These reserves also contribute to maintaining the Kingdom's high credit rating and instill confidence in local and international investors.

SAMA oversees the licensing process for local and foreign banks operating in the Kingdom. As of 2024, the number of licensed local banks reached 13 commercial banks, in addition to about 12 foreign banks operating through their branches. The authority's tasks include reviewing capital structures, ensuring banks comply with financial solvency standards, and monitoring asset quality and non-performing loan ratios. The authority also imposes strict regulatory requirements such as the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) to ensure banks can withstand any financial emergencies. Oversight also extends to insurance companies, financing, factoring, and electronic banking; the authority sets governance standards and customer protection measures to ensure transparency and trust among stakeholders.

SAMA is not a listed company on the Tadawul market, and investors cannot buy or trade its shares. However, the authority's monetary policies significantly impact the performance of the Saudi financial market. For example, decisions to raise or lower interest rates affect borrowing costs, which in turn reflects on the profits of listed companies in the market, especially banks and companies heavily reliant on financing. Additionally, the stability of the Saudi Riyal and liquidity policies enhance investor confidence in the financial market. The Capital Market Authority (CMA) closely monitors the trends and policies of SAMA, as coordination between them contributes to financial stability and the development of the investment environment in the Kingdom.

The Saudi financial sector is classified as one of the largest and most regulated sectors in the Middle East, with SAMA playing a primary supervisory role. This sector includes commercial banks, financing companies, insurance, financial brokerage, and banking infrastructure. Financial institutions contribute a significant share to the Kingdom's GDP, with total bank assets exceeding four times the GDP in 2023. Saudi banks comply with capital and solvency standards imposed by SAMA, which often exceed the international minimum by 17%-20% of risk-weighted assets. The authority's policies have contributed to the development of digital banking services, enhancing financial inclusion, and expanding financial products in line with the goals of Vision 2030.

SAMA does not face direct competition as the exclusive authority responsible for monetary policy and regulating the financial system. However, there are other regulatory bodies that influence the Saudi financial sector, most notably the Capital Market Authority (CMA), which is responsible for regulating the stock and sukuk markets, and the Ministry of Finance, which oversees financial policies and public debt management. Additionally, major banks and financial institutions play an important role in implementing SAMA's policies, and their performance quality and discipline are benchmarks for the success of regulatory policies. SAMA also collaborates with international institutions such as the International Monetary Fund (IMF) and the Bank for International Settlements (BIS) to align financial policies with global standards.

During 2024-2025, SAMA maintained the key interest rate (Repo) at 5.50% and the deposit rate at 5.25% to control inflation and stabilize the exchange rate of the Riyal. The banking loan portfolio increased by 12% during 2023, with private sector deposits growing by 8%. Non-performing loans decreased to less than 2% of total loans, reflecting improved asset quality. On the other hand, the number of local banks reached 13, with an expansion in licenses for financial services and insurance companies. The authority invests its foreign reserves in safe financial instruments to ensure the resilience of the Saudi financial system and achieve sustainability.

SAMA places great importance on developing financial technology in Saudi Arabia. The authority has launched several initiatives to support the digital transformation sector, including the establishment of a regulatory sandbox to test electronic payment solutions and smart wallets, and collaboration with global banks to develop stablecoin solutions and blockchain technology. It has also supported the development of instant payment applications such as 'Mada' and has sought to enhance cybersecurity and protect customer data. The authority also aims to strengthen financial inclusion by facilitating banking services for underserved groups, in line with Vision 2030 to transform the Kingdom into a leading regional financial hub.

SAMA is responsible for issuing the national currency of Saudi Arabia (the Riyal) in all its denominations. In recent years, a new generation of high-security polymer banknotes has been launched, such as the 50 Riyal note, which helps reduce counterfeiting risks and enhance the lifespan of the currency. The authority continuously monitors the quality of banknotes and updates designs and security specifications. It has also begun initial steps to study the issuance of a national digital currency (CBDC) in collaboration with regional partners, in line with global transformations in the field of digital money.

In its efforts to enhance financial stability and develop the market, SAMA updated several regulations during 2024-2025. The updates included increasing capital requirements for major banks, strengthening customer protection standards, and developing payment and financial transfer systems. The authority also issued new regulations to regulate financial technology companies, setting cybersecurity standards and anti-fraud measures. SAMA's regulations align with the latest international standards (such as Basel III/IV) and aim to enhance transparency and governance in financial institutions to protect savers and investors.

SAMA seeks to enhance cooperation with regional and international central banks. One of the most prominent initiatives is the joint digital currency project with the UAE, aimed at facilitating intra-trade and improving the efficiency of cross-border financial transfers. The authority also participates in Gulf Cooperation Council initiatives to issue international Islamic sukuk and develop unified regulations. Globally, SAMA collaborates with the International Monetary Fund and the Bank for International Settlements to align monetary policies and exchange experiences on risk management and the development of digital financial infrastructure.

SAMA faces several challenges in the coming phase, most notably achieving a balance between supporting economic growth and controlling inflation, especially with fluctuations in oil prices and global markets. The challenge also includes developing the digital financial system and issuing a national digital currency while ensuring cybersecurity. The authority also aims to diversify foreign reserves and reduce reliance on traditional debt instruments, while building a robust system for managing financial crises and geopolitical emergencies. Enhancing financial inclusion and protecting the banking sector from risks is one of the authority's priorities in the coming years.

News about the Saudi Arabian Monetary Authority can be followed through its official website, annual reports, and press releases. Platforms such as Tadawul, 'Argaam', and 'Investing.com' provide periodic coverage of the authority's decisions, especially those related to interest rates and banking liquidity. It is important for investors to monitor the authority's trends, as its decisions directly affect the cost of financing, bank performance, and liquidity in the financial market. Although SAMA is not a traditional investment entity, its decisions are an important indicator of the economic state and investment trends in the Kingdom.