Saudi Liquidity Stress Index — January 2026: The First Signs of Relief
LSI: 80.6 | Phase: Crunch | Reference Month: January 2026
After 13 consecutive months in Crunch territory, something shifted in January 2026.
The Saudi Liquidity Stress Index (LSI) eased to 80.6 — down from 83.9 in December 2025, and the lowest reading recorded since October 2024 (66.1). It still sits in Crunch territory. Banks are still under pressure. But the direction matters.
This issue unpacks what drove the easing, what the data is actually telling us, and why declaring a liquidity recovery would be premature.
What the LSI Is Measuring
The LSI is a composite index built on SAMA Monthly Bulletin data, calibrated against the FRED SOFR rate. It captures structural and market-based stress in Saudi Arabia’s banking system across two pillars:
| Pillar | Weight | Jan 2026 Score |
|---|---|---|
| Structural | 50% | 76.1 |
| Market | 50% | 85.0 |
| Composite LSI | 80.6 |
A third lens — the USD Lens (SAIBOR-SOFR spread) — scores at 63.3 and is shown as a contextual signal, not included in the composite.
Each metric is scored as its percentile rank within a trailing 60-month window, so what you’re reading is stress relative to the last five years — not an absolute level.
The January 2026 Signals
Structural Pillar: 76.1 (Eased from 81.1 in Dec 2025)
The structural pillar reflects the balance sheet reality of Saudi banks:
- LDR (Private): 106.9% — Private sector loans still exceed deposits. Banks are lending more than they’re taking in on the deposit side. This is a chronic structural imbalance.
- Funding Gap: 4.1 pp — The gap between loan growth and deposit growth persists.
- Time Deposit Share: 39.9% — Depositors continue to favour term deposits, which is rational given rates but adds rigidity to banks’ liability structures.
The structural score easing from 81.1 to 76.1 is meaningful. It suggests some relief on the balance sheet side — likely from seasonal deposit inflows at year-end flowing through into January data.
Market Pillar: 85.0 (Eased from 86.7 in Dec 2025)
The market pillar captures how interbank pricing deviates from policy:
- SAIBOR 3M: 4.85%
- Repo Rate: 4.25%
- Transmission Spread: 60.2 bps
A 60 bps gap between SAIBOR and the Repo Rate tells you that despite SAMA holding rates steady, the interbank market is pricing in significantly more stress than the policy rate implies. Banks are demanding a premium to lend to each other. That is the definition of market-side liquidity stress.
For context: in July 2023 — the one month the index touched Balanced territory — this spread was negative (-4.6 bps). The market was pricing in easier conditions than policy. Today it’s 60 bps in the other direction.
USD Lens: 63.3 (SAIBOR - SOFR: 101.7 bps)
The SAIBOR-SOFR spread has compressed significantly from its peak of 133.2 bps in February 2023 to 101.7 bps today. This reflects gradual convergence between Saudi interbank costs and US dollar funding costs — a positive signal for SAR-USD dynamics, even if conditions remain tight in absolute terms.
Putting January in Context
Here’s the 14-month picture:
| Month | LSI | Phase |
|---|---|---|
| Feb 2025 | 83.6 | Crunch |
| Mar 2025 | 90.8 | Crunch — Peak |
| Apr 2025 | 86.7 | Crunch |
| May 2025 | 85.0 | Crunch |
| Jun 2025 | 90.8 | Crunch — Peak |
| Jul 2025 | 86.7 | Crunch |
| Aug 2025 | 83.1 | Crunch |
| Sep 2025 | 87.2 | Crunch |
| Oct 2025 | 87.8 | Crunch |
| Nov 2025 | 81.1 | Crunch |
| Dec 2025 | 83.9 | Crunch |
| Jan 2026 | 80.6 | Crunch |
The index peaked twice at 90.8 — in March and June 2025. Since then it has been on a broadly declining trend, with January 2026 representing the clearest step down yet.
But perspective matters: 80.6 is still above the 12-month average of the prior Tight period (Jan–Nov 2024: ~73.5). The system has eased from extreme stress to significant stress. That is progress, not resolution.
What Would a Real Recovery Look Like?
For the LSI to drop from Crunch into Tight territory (below 81), you would need to see:
- LDR compression — loan growth decelerating or deposit growth accelerating. Neither is structurally easy in Saudi Arabia’s current credit cycle.
- Transmission spread narrowing — SAIBOR converging toward the Repo Rate. This typically requires either a rate cut from SAMA (which follows the Fed) or genuine easing of interbank credit conditions.
- Time deposit share stabilising — signal that depositors are less anxious about locking in rates, suggesting confidence in the rate environment.
A Fed rate cut cycle — which most analysts now expect in H2 2026 — would be the single most powerful catalyst for LSI relief, compressing both the market pillar and the USD lens simultaneously.
The Bottom Line
January 2026’s LSI reading of 80.6 is the best number in over a year. The structural pillar eased meaningfully. The market pillar remains deeply stressed but is off its highs.
This is not a recovery. It is the first data point that suggests the peak of this stress cycle may be behind us.
Watch the February 2026 reading closely. If the structural pillar holds below 80 and the transmission spread narrows further, the case for a genuine turn begins to build. If either reverses, January was just seasonal noise.
The LSI will be updated monthly. You can track it live at decoded.finance/lsi.
Data: SAMA Monthly Bulletin (Tables 5-6, 10a, 10b, 11) and FRED SOFR 90-Day Average. Methodology: percentile rank scoring within trailing 60-month window, winsorized at 5th-95th percentile. For educational purposes only. Not investment advice.
The Saudi Liquidity Stress Index was introduced in Issue 001 of this newsletter. Read the original methodology piece on LinkedIn Pulse.
Abdul Gaffar Mohammed, CFA
Treasury & Investment Professional