Saudi Central Bank: Key Role and Recent Developments in Financial System

The Saudi Central Bank was established in 1371 AH (1952 AD) to be the supreme authority for monetary and financial policy in the Kingdom. The bank was created within the context of building the modern financial framework for the Saudi state and was then the only entity responsible for issuing the national currency, regulating the exchange market, and managing foreign reserves. Over the decades, the bank's powers expanded to include oversight of commercial banks, financing and insurance companies, and regulation of payment systems and credit information. In May 2024, a new system was adopted that granted the bank the name "Saudi Central Bank," while retaining the historical abbreviation "SAMA." This legal transformation affirms the financial and administrative independence of the central bank and establishes a modern framework for its governance, ensuring transparency, professionalism, and flexibility in facing economic challenges. This development aligns with the Kingdom's Vision 2030 aimed at enhancing the efficiency of financial sectors and achieving integration with the global economy.

The core objectives of the Saudi Central Bank can be summarized in three main areas: First, maintaining monetary stability, which reflects price stability and the strength of the Saudi Riyal; second, supporting the stability of the financial sector and enhancing confidence in it; and third, supporting the economic growth of the Kingdom. To achieve these objectives, the central bank formulates balanced monetary policies that include managing interest rates, exchange procedures, and regulating foreign currency and gold reserves. The bank also seeks to ensure the safety of the financial system through direct supervision of banks, financing companies, and insurance, while monitoring compliance with international capital standards (such as Basel III). These objectives are part of the international trends of central banks, but the uniqueness of the Kingdom lies in the peg of the Saudi Riyal to the US Dollar, which requires the central bank to align its policies with global changes, especially movements of the US Federal Reserve.

The formulation and implementation of monetary policy is one of the most important responsibilities of the Saudi Central Bank. Monetary policy tools include key interest rates, repurchase operations (repo), mandatory reserve ratios for banks, and interventions in the foreign exchange market. In recent years, the bank has followed a policy of linking local interest rates to US interest rates to ensure the stability of the exchange rate of the Riyal against the Dollar (3.75 Riyals per Dollar since 1986). By the end of 2023, the repo rate was around 6%, and the central bank gradually lowered this rate as the US Federal Reserve slowed down, stabilizing it between 5.25% and 5.50% at the beginning of 2025. The central bank also uses liquidity management tools to ensure the availability of cash in the banking system and intervenes when necessary to maintain price stability and inflation rates within the target range (2-3% in 2024-2025). This flexibility in monetary policy enables the bank to support economic growth and respond to global and local financial crises.

The Saudi Central Bank supervises more than 30 local banks and about 15 branches of foreign banks, in addition to dozens of financing and insurance companies. The bank sets strict standards for capital, liquidity ratios, and risk management, based on international Basel III requirements. The Saudi banking sector witnessed a growth in lending to the private sector of approximately 8% in 2024, along with an increase in deposits and banking assets. Capital-to-assets ratios have maintained high levels exceeding legal limits, reflecting the robustness of the sector. The central bank regularly monitors asset quality, non-performing loans, and the solvency of insurance companies, and implements stringent precautionary policies to mitigate systemic risks. During crises, such as the COVID-19 pandemic, the bank took supportive measures such as reducing mandatory reserves and deferring loan installments for affected sectors, contributing to financial stability and ensuring the continuity of financing for the national economy.

The Saudi Central Bank holds substantial foreign reserves that include foreign currency and gold, valued at over $450 billion by the end of 2024. These reserves aim to support the strength of the Saudi Riyal, finance imports of goods and services, and ensure the ability to intervene in the market when necessary. These reserves are among the highest globally as a percentage of GDP, providing the Kingdom with significant flexibility in facing financial crises or fluctuations in oil prices. The central bank manages these assets according to global investment standards while maintaining high liquidity levels. The bank also continuously monitors foreign currency movements and ensures full coverage for the issuance of the national currency, enhancing confidence in the financial system and preventing sharp fluctuations in the exchange rate.

Controlling inflation rates is a priority of the monetary policy of the Saudi Central Bank. In 2024, the annual inflation rate was around 2-3%, with a local average of about 2.3% in mid-2025. This reflects the bank's success in maintaining price stability despite global challenges related to rising energy prices and some essential commodities. The central bank relies on its monetary tools, particularly interest rates and banking liquidity management, to achieve this goal. It also closely monitors price developments in vital sectors such as housing, energy, and insurance, intervening when necessary to adjust inflation expectations. Price stability is a crucial element in supporting the purchasing power of Saudi households and enhancing the investment environment.

Bank loans to the private sector in Saudi Arabia have seen steady growth in recent years, with a lending rate increase of about 8% during 2024. Bank deposits have also risen due to oil inflows and increased confidence in the financial system. The central bank oversees loan quality and monitors coverage and solvency ratios to ensure that non-performing debts do not accumulate. The bank also encourages the diversification of financing products, including housing loans, personal loans, and financing for small and medium-sized enterprises. In return, the institution has launched programs to support innovation in digital finance and payments, enhancing the efficiency of banking services and the speed of transfers between banks. These developments are indicators of an improved investment environment and a higher level of financial inclusion in the Kingdom.

The role of the Saudi Central Bank extends beyond traditional banks to include mortgage financing companies, consumer financing, and insurance companies. The bank establishes regulatory frameworks to ensure the solvency of these companies, protect consumer rights, and encourage fair competition. It also supervises financial technology (FinTech) companies, providing a sandbox environment for developing electronic payment solutions and innovative financial products. The institution has launched initiatives such as the Fintech Saudi Center and accelerator programs to support startups in the financial sector. Additionally, the bank has developed credit information systems (such as "SIMAH") to enhance transparency and reduce credit risks. These efforts contribute to modernizing the Saudi financial sector, making it more capable of keeping pace with global digital transformations.

The Saudi Central Bank has placed utmost importance on digital transformation in the financial sector. It launched the national payment network "Mada," which connects all local banks and enables instant and secure payment services. It also supported the launch of platforms such as "Sari" for instant transfers and expanded payment services via smartphones (Samsung Pay, Apple Pay). The bank is also working on the digital Riyal project (CBDC), a sovereign digital currency under study aimed at enhancing the efficiency of the monetary system and providing modern payment options for citizens and businesses. Additionally, it launched the Open Banking initiative to enable secure sharing of financial data between banks, enhancing innovation and contributing to the development of more personalized and flexible financial services for customers.

The Saudi Central Bank enjoys financial and administrative independence, with a direct connection to the Custodian of the Two Holy Mosques. The relationship with the government is limited to coordinating financial policies to achieve the objectives of the Kingdom's Vision 2030, without direct interference in the bank's daily decisions. The bank also collaborates with the Ministry of Finance and the Ministry of Investment to ensure the integration of monetary and financial policies. Internationally, the Saudi Central Bank is a member of global monetary and financial organizations such as the International Monetary Fund and participates in shaping international monetary policies and exchanging information with other central banks. These relationships enhance the Kingdom's position in the global financial system and allow it to benefit from international experiences in crisis management.

Although direct oversight of the stock and sukuk market is under the Capital Market Authority (CMA), the policies of the Saudi Central Bank indirectly affect financial markets. Interest rates and banking liquidity influence banks' ability to finance public companies and participate in the issuance of sukuk and government bonds. Additionally, the stability of the financial system enhances investor confidence in the stock market. The central bank collaborates with the CMA to ensure market safety, combat money laundering, and enhance transparency in financial transactions. Modern payment systems enable banks and companies to execute fast and secure transactions, contributing to the development of an attractive investment environment for both local and foreign capital.

The new system of the Saudi Central Bank has established a modern governance framework, including high committees for monetary policy, internal audit committees, and periodic disclosure requirements. The bank is managed by a governor appointed by royal decree, supported by a team of financial and economic experts. The institution issues monthly and quarterly reports outlining the performance of the financial sector, liquidity indicators, foreign reserves, and economic growth. It also adheres to transparency standards in publishing data and disclosing critical decisions. These policies contribute to enhancing trust in the financial community and investors, supporting the central bank's position as a reliable and independent institution in managing monetary policy.

The Saudi Central Bank has no direct competitors in the local market, as it monopolizes monetary and regulatory authority over the national financial system. The closest related entity is the Capital Market Authority (CMA), which regulates the capital market but does not interfere in banking or monetary policy matters. Regionally and internationally, the peers of the Saudi Central Bank include institutions such as the UAE Central Bank, the US Federal Reserve, and the Bank of England. These banks cooperate in formulating international monetary policies, exchanging experiences, and managing financial crises. This cooperation enhances the stability of the global financial system and provides a channel for knowledge exchange on best practices in monetary policy management.

The Saudi Central Bank has recently witnessed several significant developments. The most notable is the legal name change to "Saudi Central Bank" in 2024, while continuing to update monetary policies and adopting the latest electronic payment systems and digital banking services. The bank has launched initiatives to support innovation in financial technologies (FinTech) and is currently studying the issuance of a digital Riyal (CBDC). The bank has also strengthened its role in combating money laundering and financing terrorism, developing guidelines for financial disclosure and consumer protection. In terms of sustainability, the bank adopts sustainable financing initiatives and environmental and social governance, aligning with global economic trends. These developments represent part of a comprehensive strategy to make the Saudi financial sector more competitive and innovative in the upcoming phase.