Private banks lending directly to a foreign government? That's unusual, right? Banks typically lend to corporations. But six banks, two of them Japanese megabanks, extended a $1.5 billion loan directly to Saudi Arabia's Ministry of Finance. Their goal: a ticket into the Kingdom's infrastructure projects.

A First: Six Banks Lend Directly to the Saudi Government

In January 2026, six financial institutions extended a $1.5 billion (approximately ¥235 billion) syndicated loan to Saudi Arabia's Ministry of Finance. It was the first time Japanese private banks had directly financed the Saudi government.

The syndicate comprised Sumitomo Mitsui Banking Corporation (SMBC), MUFG Bank, and the Tokyo branches of HSBC, Citibank N.A., JPMorgan Chase Bank and BBVA. Only two of the six are Japanese megabanks; the other four are Tokyo branches of foreign banks.

The loan carries a quasi-government guarantee, because Nippon Export and Investment Insurance (NEXI), wholly owned by the Japanese government, underwrote it. The deal rests on a December 2020 memorandum of cooperation between NEXI and the National Debt Management Center (NDMC), the executing arm of the Saudi finance ministry. The agreement was announced on January 11, 2026 at the Saudi-Japan Ministerial Investment Forum in Riyadh, with Economy, Trade and Industry Minister Ryosei Akazawa and Saudi Investment Minister Khalid Al-Falih in attendance.

Why Lend to a Government Instead of Companies?

Typically, banks provide financing to corporations conducting business. The strategic decision to lend directly to the Saudi government reflects Japan's ambition to participate in Saudi Arabia's national-level megaprojects.

The loan contract specifies its purpose as "support for water and power sectors in Saudi Arabia." With desert covering most of its territory, Saudi Arabia relies on desalinated seawater from the Red Sea and Persian Gulf coasts for its water supply. Rapid economic growth has made expanding water capacity an urgent priority, with massive government-led desalination projects now underway.

Additionally, under the "Vision 2030" initiative aimed at reducing oil dependency, Saudi Arabia is transforming its industrial structure. The Kingdom is investing heavily in renewable energy generation and decarbonizing its power plants.

Building Toward Expo 2030 Riyadh

Riyadh will host its first World Expo in 2030, driving numerous infrastructure projects and massive investments across the capital and beyond.

This loan serves as Japan's "advance investment" to position Japanese companies for participation in Saudi Arabia's massive infrastructure developments. The strategy involves first building relationships through government-level financing, then leveraging those connections for corporate project involvement, an unconventional financial approach.

Japanese Companies Poised for Participation

Several Japanese companies are expected to benefit from this financing arrangement and expand their presence in Saudi Arabia.

Toray Industries leads globally in reverse osmosis (RO) membrane technology essential for seawater desalination. The company has already completed successful demonstration projects in Saudi Arabia with Hitachi, achieving approximately 20% energy savings compared to conventional systems.

Mitsubishi Heavy Industries brings extensive experience in decarbonized power generation, including renewable energy and hydrogen/ammonia power technologies that align with Saudi Arabia's power sector decarbonization goals.

Marubeni holds a 45% stake in the water project in the Shuqaiq district on Saudi Arabia's Red Sea coast. The reverse-osmosis plant produces 450,000 cubic meters a day, enough for roughly 2 million people, and began commercial operation in January 2022 under a 25-year water sales contract with the state-owned Saudi Water Partnership Company.

A New Chapter in Japan-Saudi Economic Relations

The Japan-Saudi relationship has evolved far beyond the traditional "oil producer-consumer" framework. Under the "Japan-Saudi Vision 2030" agreed in 2017, 54 cooperation projects are progressing across nine sectors including energy, water, healthcare, and space exploration.

This megabank financing represents a crucial step in supporting this strategic partnership from the financial side. It also aligns with the Japanese government's "Crisis Management Investment" initiative targeting 17 strategic sectors, aiming to boost Japanese corporate expansion overseas.

The Significance of Saudi Arabia's Water Strategy

Saudi Arabia ranks among the world's most water-scarce nations, with no natural rivers across its entire territory. Currently, seawater desalination supplies approximately 50% of the country's water needs, with plans to increase this to 90% by 2030.

The Saline Water Conversion Corporation (SWCC) handles about 20% of global seawater desalination, making it the world's largest desalination operator. Entry into this sector represents a significant business opportunity for Japanese companies.

However, desalination requires substantial energy and raises environmental concerns. Saudi Arabia has set ambitious targets to eliminate concentrated brine discharge into oceans by 2030, creating strong demand for Japan's energy-efficient and environmental technologies.

Lend to the government first, then send the operating companies in behind it. That is the sequence Japan is running in Saudi Arabia. Does your country have similar examples of banks lending to foreign governments? What are your thoughts on economic cooperation with Middle Eastern nations? We'd love to hear your perspective!

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