Saudi Central Bank sets 1% countercyclical capital buffer requirement effective May 2026

The Saudi Central Bank mandated all banks to raise the countercyclical capital buffer (CCyB) from 0% to 1% of total risk-weighted assets, effective May 25, 2026.

The central bank attributed the decision to its role in maintaining the safety and stability of the financial sector, referring to its circular on implementing the CCyB.

The CCyB is designed to ensure banks maintain adequate capital relative to the macrofinancial environment. It aims to protect the banking sector during periods of excessive credit growth, which are often linked to systemic risk buildup. During economic downturns, the buffer helps mitigate risks of impaired economic performance and additional credit losses.

The CCyB ranges from 0% to 2.5% of total risk-weighted assets and is calculated as a weighted average of buffers applicable in countries where banks have credit exposures.

Since January 1, 2016, banks have been required to use country-specific buffer rates to calculate the CCyB.

The Saudi Central Bank adopted the credit-to-GDP gap, as proposed by the Basel Committee, as the primary indicator for CCyB calculation. Additional financial system indicators or methodology revisions may be included as needed.

Reciprocity is a key principle in calculating the CCyB, applying mainly to Basel Committee member countries and their respective buffer rates. These rates, along with Saudi Arabia’s buffer rates, are published on the Basel Committee’s website and must be considered by banks. The Saudi Central Bank may impose more conservative rates for specific countries if necessary.

Banks must include private sector counterparty exposures subject to credit risk capital charges in the banking book and risk charges related to the trading book, including increased risk charges and securitization. Interbank exposures and exposures to public sector entities are excluded, while exposures to the non-bank financial sector must be included.

Banks must consider the geographic location of private sector credit exposures and calculate the CCyB as a weighted average of buffers applied across countries where exposures exist. Weighting is based on the total credit risk charges related to private sector credit risk in each country, divided by the bank’s total private sector credit risk charges.

Banks must obtain approval from the Saudi Central Bank before distributing dividends. Approval will consider the capital conservation buffer, the CCyB, and any applicable local systemically important bank buffers.

The Basel Committee on Banking Supervision issued the Basel III capital standards in 2010, which included detailed information on the CCyB.