Saudi banks drive GCC shift toward USD debt issuance: Fitch

Saudi banks are spearheading a structural shift in GCC bank debt issuance towards subordinated US dollar instruments, and momentum is likely to persist into 2026 as capital needs rise and rules tighten, Fitch Ratings said in a report.

Subordinated instruments constitute an increasingly large proportion of new issuance as banks respond to strong financing growth and forthcoming buffer increases.

GCC banks’ dollar issuances this year have exceeded $55 billion, including certificates of deposit (CDs), well above the 2024 total ($36 billion) and 2025 maturities ($23 billion). Over half ($29.3 billion) is from Saudi banks, including $11.7 billion in additional Tier 1 (AT1) and Tier 2 capital.

Fitch added that subordinated debt accounts for over 70% of Saudi banks’ dollar debt issuance (excluding CDs) so far this year, compared to nearly 50% in 2024.

Saudi banks’ CD issuance remains strong, at more than $13 billion in 2025, helping to geographically diversify the investor base to counter still-tight local liquidity.

Several drivers are behind the Saudi banks’ surge in subordinated dollar debt issuance. Strong financing growth is outpacing deposit growth and has eroded capital buffers in recent years. The sector common equity Tier 1 (CET1) ratio decreased by 213bp over 2020-2024. Fitch expects sector credit growth to be 12% in 2025, the highest among GCC banking sectors, with further strong growth in 2026.

Upcoming capital regulation, including the 1% countercyclical buffer from May 2026 and tighter capital rules for interest-rate risk, could also pressure capital buffers and potentially some banks’ Viability Ratings. The banks are also increasingly active in financing projects for Vision 2030. Such financing attracts higher risk-weightings under final Basel III rules, heightening pressure on CET1 ratios.

AT1 still dominates non-core capital, at up to 5% of risk-weighted assets at some banks. There is no regulatory cap on the contribution of AT1 to capital, and AT1 is still attractive for banks relative to Tier 2 funding given the modest spread differential between AT1 and Tier 2 debt in the GCC.

However, Saudi banks have issued nearly $6 billion of Tier 2 debt this year as they seek to make their capital stacks more balanced across instruments. Tier 2 issuance also broadens the investor base as it attracts more international investors, whereas AT1 issuance is mostly absorbed by domestic and regional investors.

“We expect issuance to remain strong in 2026 on more than USD10 billion of maturities, continued financing needs and lower interest rates. About USD1.8 billion of AT1 instruments will reach first call dates in 2026, and we expect these to be called due to favourable market conditions, including lower interest rates,” Fitch concluded.