Saudi Central Bank: The Cornerstone of Financial Stability

The Saudi Central Bank is the supreme regulatory authority for monetary policy in the Kingdom of Saudi Arabia, differing from commercial companies in that it does not aim to generate profits and does not issue shares in the financial market. Its main tasks focus on maintaining price stability, ensuring liquidity in the financial system, and issuing the local currency. In the context of the Saudi financial market, the central bank plays a pivotal role by indirectly influencing the activities of companies listed on Tadawul through its policies related to interest rates and cash reserves. Decisions made by the Saudi Central Bank regarding interest rates significantly affect borrowing and lending costs, and consequently the returns and profits of companies and commercial banks. The Saudi Central Bank also supervises major banks and financing companies, issuing periodic reports such as the Financial Stability Report, which provides investors with indicators about the health of the national economy. All these aspects make the central bank a key player in shaping the regulatory environment of financial markets in the Kingdom.

The Saudi Central Bank was established in 1952 under the name of the Saudi Arabian Monetary Authority (SAMA), becoming the first official financial institution to oversee monetary policy in the Kingdom. Since its inception, the central bank has witnessed significant developments in its organizational structures and expanded its functions, starting with issuing the Saudi Riyal and regulating commercial banks, then expanding to include oversight of financing companies, insurance companies, and electronic payment systems. In recent years, with global economic changes and the increasing importance of transparency and governance, the Saudi Central Bank has launched numerous initiatives aimed at enhancing financial oversight and adopting best global practices in banking operations. Among these initiatives are the continuous updating of regulatory frameworks, the introduction of International Financial Reporting Standards (IFRS), and the development of instant payment systems. The institutional transformation of the Saudi Central Bank reflects the Kingdom's ambitions to become a regional financial hub that enhances the stability of local markets and attracts foreign investments.

Monetary policy is one of the most important tools used by the Saudi Central Bank to achieve price stability and curb inflation. The main tools of monetary policy include setting interest rates (repo rate and discount rate), regulating the money supply in the economy, and managing foreign reserves. The Saudi Riyal is pegged to the US dollar, making the central bank's policy closely tied to the policies of the US Federal Reserve. In recent years, the Saudi Central Bank's policy has been characterized by flexibility in facing global economic challenges, as interest rates have been adjusted several times to keep pace with changes in international markets. For example, at the end of 2024, the Saudi Central Bank maintained the repo rate at 3.50% after a series of reductions to support economic growth. The central bank also uses open market operations to manage liquidity and ensure financial stability in the banking system. These combined policies aim to strike a balance between supporting economic growth and maintaining the stability of the local currency.

The size of foreign reserves at the Saudi Central Bank is among the highest globally, reaching approximately $0.49 trillion in mid-2024. These reserves provide strong support for the stability of the Saudi Riyal and enable the central bank to intervene in currency markets when necessary. The Saudi Central Bank manages a significant portion of these assets through investments in foreign treasury bonds and international deposits, in addition to extending strategic deposits to friendly countries such as Pakistan. Reserve management is conducted according to strict standards aimed at achieving returns, ensuring liquidity, and preserving capital. These reserves also contribute to enhancing confidence in the Saudi financial system and provide a cash buffer that supports the Kingdom's ability to meet its international obligations. Decisions regarding reserve management are closely linked to global economic conditions and oil prices, as SAMA always seeks to maintain a secure reserve level that supports currency stability and monetary policy.

The Financial Stability Report for 2024 issued by the Saudi Central Bank showed the resilience of the financial and banking sector in the Kingdom. The capital adequacy ratio of banks rose to 20.1%, one of the highest rates in the region, reflecting the ability of Saudi banks to withstand economic shocks. Regarding economic activity, the non-oil activities accounted for 49.9% of the Kingdom's GDP, recording a growth of about 4.4% in 2023. Inflation rates remained within a safe range of 1% to 3% during 2024-2025, under effective monetary policies and substantial foreign currency reserves. The Saudi banking sector is also characterized by ample liquidity and high asset quality, as confirmed by SAMA's report through liquidity indicators and low non-performing loan ratios. These positive results support the stability of the Saudi financial market and enhance the confidence of local and international investors.

The Saudi Central Bank is at the core of the financial sector, playing a supervisory and regulatory role over commercial banks, financing companies, insurance companies, and payment systems. Through these roles, the central bank ensures financial stability and promotes financial inclusion by encouraging innovation in payment and financing services. The Saudi financial sector is characterized by a strong banking structure based on local liquidity and underwriting, and has witnessed significant developments in digitization such as instant payments (Mada) and facilitating mortgage loans for individuals. The central bank has also contributed to introducing structural reforms, such as implementing IFRS 17 standards in insurance and adopting international clearing standards ISO 20022. These reforms aim to enhance transparency and attract investments, while major commercial banks such as the National Commercial Bank and Al Rajhi Bank remain key pillars of this active sector. The interaction between the Saudi Central Bank and the Capital Market Authority creates an integrated regulatory environment that supports the growth and stability of the national economy.

The Saudi Central Bank has close cooperative relationships with the Ministry of Finance and the Capital Market Authority, together forming the financial regulatory system in the Kingdom. The Ministry of Finance handles matters related to the public budget and issuing debt instruments, while the Capital Market Authority oversees the regulation of securities, brokerage firms, and investment funds. The Saudi Central Bank coordinates with these entities to ensure the alignment of monetary and financial policies, especially regarding issues such as anti-money laundering, financial transparency, and investor protection. This cooperation contributes to building a strong regulatory framework that enhances market stability and ensures the protection of the rights of all parties. The Saudi Central Bank also participates in formulating new legislation to develop the banking and financial sector, including regulations for non-traditional banking activities and the regulation of digital currencies in collaboration with the Capital Market Authority.

The year 2024 witnessed many significant developments at the Saudi Central Bank, most notably the Kingdom's joining the mBridge project for a common digital currency in collaboration with China and other central banks, as part of updating the payment system and facilitating cross-border transfers. The Aber project was also launched to develop a national digital currency in collaboration with the Bank for International Settlements, underscoring SAMA's direction towards adopting modern financial technologies. In terms of monetary policy, the central bank continued to adjust interest rates to keep pace with changes in the global economy and control inflation while ensuring support for economic growth. SAMA also launched a new set of regulations for non-traditional banking activities and tightened oversight on financing and insurance companies to enhance financial stability and transparency. Additionally, recent periods have seen enhanced international cooperation through the extension of reserve agreements with foreign central banks, reflecting the pivotal role of the Saudi Central Bank regionally and internationally.

The Saudi Central Bank supervises a wide range of commercial banks and financial institutions, among the largest of which are: the National Commercial Bank, Al Rajhi Bank, Riyad Bank, the Saudi British Bank (SABB), Bank Albilad, and Bank Alinma. These financial institutions compete in providing banking services to individuals and businesses, all of which are subject to strict oversight by the central bank regarding capital adequacy, liquidity, asset quality, and compliance with international standards. In addition to banks, the central bank supervises mortgage financing companies and insurance companies, imposing advanced accounting and financial standards to ensure the protection of depositors' and clients' funds. The interaction between the central bank and these institutions ensures the stability of the banking system and reduces systemic risks in the Saudi financial market.

Controlling inflation levels and ensuring price stability are among the main objectives of the Saudi Central Bank. The central bank employs various tools such as adjusting interest rates, controlling the money supply, and intervening in the currency market when necessary. Recently, the Saudi Central Bank has successfully maintained relatively low inflation levels ranging between 1% and 3% during 2024-2025, despite fluctuations in global oil and commodity prices. The central bank relies on official indicators such as the Consumer Price Index issued by the General Authority for Statistics and continuously evaluates economic risks and takes proactive measures. Price stability enhances confidence in the Saudi Riyal and stimulates investment and economic growth, positively reflecting on the performance of companies listed in the Saudi financial market.

The Saudi Central Bank has adopted a clear strategy to enhance financial inclusion and digital transformation in the financial sector. Among the most prominent initiatives are the development of instant payment systems (such as Mada), expanding electronic payment services, and encouraging innovation in digital financial services. The central bank has also launched programs to support mortgage and microfinance, aiming to facilitate access to financial services for individuals and small businesses. In recent years, the Kingdom has witnessed significant growth in the use of digital wallets and banking applications, contributing to increased efficiency in the financial system and reducing operational costs for banks. Digital transformation enhances the competitiveness of the Saudi financial sector and supports the Kingdom's Vision 2030 in building a diversified and sustainable economy.

The Saudi Central Bank plays an active role in enhancing international cooperation, participating in regional and international financial organizations such as the Financial Stability Board and the Arab Monetary Fund. Through this participation, the central bank seeks to exchange experiences and adopt best global practices in managing monetary policies and reserves. The Kingdom also enhances its financial position by extending reserve agreements with foreign central banks and contributing to the stability of international financial markets. For example, the extension of the Saudi deposit in Pakistan worth $3 billion at the end of 2024 reflects the Kingdom's commitment to supporting financial stability in the region. These efforts enhance the Kingdom's position as a regional financial power and support the confidence of international investors in the Saudi market.

SAMA places utmost importance on transparency and governance in all its policies and procedures. The institution issues periodic reports such as the Financial Stability Report and quarterly reports on monetary indicators, and provides financial and economic data through its official website. The Saudi Central Bank is also committed to applying internal control standards and anti-money laundering and counter-terrorism financing procedures in line with international standards. Transparency in monetary policies enhances the stability of the financial market and supports the decisions of investors and financial institutions. Additionally, sound governance ensures the independence of the central bank in decision-making and contributes to enhancing the credibility of the Saudi financial system at both local and international levels.