🏦💰 Private banks lending directly to a foreign government? That's unusual, right? Banks typically lend to corporations. But six Japanese megabanks just announced a $1.5 billion loan directly to Saudi Arabia's Ministry of Finance—the first of its kind. Their goal? A ticket into the Kingdom's massive infrastructure projects.
Japan's Megabanks Make Historic First Loan to Saudi Government
In January 2026, six major Japanese financial institutions, including Sumitomo Mitsui Banking Corporation (SMBC) and MUFG Bank, announced a groundbreaking $1.5 billion (approximately ¥235 billion) syndicated loan to Saudi Arabia's Ministry of Finance. This marks the first time Japanese private banks have directly financed the Saudi government.
The loan carries a quasi-government guarantee, as Japan's Nippon Export and Investment Insurance (NEXI), a 100% government-owned entity, is underwriting the insurance. Economy, Trade and Industry Minister Ryosei Akazawa confirmed the loan agreement during his visit to Saudi Arabia at the "Japan-Saudi Ministerial Investment Forum" held in Riyadh.
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 already operates a desalination facility on Saudi Arabia's Red Sea coast in the Shuqaiq region, with a daily production capacity of 450,000 cubic meters of freshwater.
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.
The Bigger Picture
This financing arrangement demonstrates how Japan is using financial diplomacy to secure positions in strategic overseas markets. By providing government-backed loans for infrastructure development, Japanese banks create pathways for the country's engineering and technology companies to participate in some of the world's largest projects.
For Saudi Arabia, Japanese participation brings advanced technology and proven expertise in critical infrastructure development. The Kingdom's ambitious Vision 2030 program requires partners who can deliver sophisticated solutions for water security, renewable energy, and sustainable development.
In Japan, megabanks are now pursuing entry into Saudi Arabia's national projects through government-guaranteed financing. 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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Reactions in Japan
Banks lending directly to the Saudi government is quite remarkable when you think about it. With NEXI insurance backing it up, it's essentially government-guaranteed. If this helps Japanese companies get into Saudi megaprojects, it's not a bad strategy.
Really seeing the progress of Japan-Saudi Vision 2030. Cooperation has steadily deepened since the 2017 agreement. It's encouraging that it now extends beyond energy security to water and space sectors.
235 billion yen loan... I'm worried given the high geopolitical risks in the Middle East. I understand strengthening ties with Saudi, but if things go south, taxpayers end up footing the bill, right?
Excited to see Toray's RO membrane technology fully deployed in Saudi. The tech that achieved 20% energy savings in joint demonstration with Hitachi could spread to water-scarce regions worldwide. A great example of Japanese technology helping the world.
Saudi accounts for about 40% of Japan's oil imports—our most important partner. Interesting how interests align: Saudi seeking to move beyond oil, Japan pursuing energy transition.
One of the 6 participating banks is mine, and upper management was really excited about this deal. It's treated differently from regular credit reviews since it's practically a national policy project.
Amid intensifying US-China tensions, strengthening Middle East ties is geopolitically crucial. Since Saudi is also getting closer to China, this has significance for Japan's balance diplomacy.
Desalination does solve water issues, but it consumes massive energy and brine discharge has significant environmental impact. How much can Japanese energy-saving tech really improve this...
After Osaka Expo 2025 comes Riyadh Expo 2030. Love how Japan is helping transfer know-how—feels like passing the expo baton.
Not just big corporations—water treatment startups should have opportunities too. Heard 50+ companies accompanied the Minister to Saudi. Hope to see Japanese tech deployed widely.
Honestly questioning whether Japan's economy can afford to send 235 billion yen overseas. Domestic infrastructure isn't even updated yet... Are priorities straight?
Middle East business isn't straightforward. Local customs, political risks, religious considerations... Hope the younger generation carries this on. We used to have more Japanese expats stationed there.
The Japan-Saudi Ministerial Investment Forum also saw space sector MOUs signed. Technical cooperation for lunar exploration—Saudi is getting serious about space. Could be a tailwind for Japan's space industry.
Over 50 years since the 1973 oil shock. Japan was pushed around by Saudi back then, but now we're building partnerships as equals. Times have changed.
Saudi Arabia—isn't that where they're building NEOM and THE LINE? Those futuristic city projects? The scale is beyond imagination. Would be cool if Japanese companies could get involved.
As a Saudi citizen, I welcome this cooperation. Japan's technology is world-class, and water treatment tech is essential for our country. Japanese partnership is crucial for Vision 2030's success.
From Singapore's perspective, Japan's move is intriguing. We also have limited water resources, so desalination tech advances interest us. Hope innovations from Japan-Saudi cooperation spread across Asia.
From UK finance perspective, government-guaranteed loans to foreign governments aren't unusual. But Japan doing this with Saudi at this scale is strategically significant. Smart to link energy security with industrial exports.
German companies are also eyeing Saudi's renewable energy market. We'll compete with Japan, but the market is huge enough for everyone. There might even be opportunities for German-Japanese collaboration on projects.
China is also strengthening ties with Saudi Arabia. We're watching Japan's moves closely. Competition will intensify, but ultimately it benefits Saudi—having multiple options increases their negotiating power.
From the US, Japan's approach to Saudi brings mixed feelings as an ally. But I understand Japan building its own relationships for energy security. With China's growing influence, Japan's presence there matters.
Cooperation with Japan is deepening in UAE too. Japanese presence seems to be growing across the Gulf, not just Saudi. Hope Japanese technology contributes to infrastructure development throughout the Middle East.
France's Veolia is also involved in Saudi water projects. Competition with Japanese companies is tough, but France holds its own. There were cases of Japanese and French firms collaborating on NEOM projects too.
Japanese expat living in Riyadh here. Japanese companies have a good reputation locally, but actual business isn't easy. Cultural differences, language barriers, slow decision-making... Training people matters as much as financing.
Korea also competes with Japan in Middle East markets. Korean companies have track records in Saudi nuclear and infrastructure projects. Japan's moves are instructive, and healthy competition grows the whole market.
From Italy—Japan's overseas expansion strategy is interesting. The government-private sector coordination to develop foreign markets offers lessons for Italy, especially for supporting SME internationalization.
I'm a Saudi female engineer. Vision 2030 is advancing women's participation in society. If Japanese companies come to Saudi, I hope they'll focus on employing women too. Want to learn not just technology transfer but work culture.
Australia also faces water issues, so we're very interested in desalination tech advances. Hope innovations from Japan-Saudi cooperation eventually help water-scarce regions worldwide.
India's interest in desalination is growing too. If Japanese tech succeeds in Saudi, expansion to the Indian market could follow. The 10,000 tons/day demonstration plant story was impressive.
Every country acts for its own interests. Japan and Saudi alike. Dressed up in pretty words, but it's all business and geopolitical calculation. Should be viewed with that understanding.