RIYADH: Saudi Arabia’s banking sector is leading a shift in Gulf financing, driving a surge in US dollar-denominated subordinated debt to fund rapid credit growth and ambitious national projects, a new analysis showed.
Fitch Ratings said Saudi banks are at the forefront of this regional trend, which is expected to continue into 2026 amid rising capital needs and tighter regulatory requirements.
As the Saudi government pushes ahead with multi-trillion-dollar Vision 2030 initiatives, banks are turning to global US dollar markets to raise crucial capital, boosting issuance of complex, high-yield subordinated bonds.
So far in 2025, Gulf Cooperation Council banks have issued over $55 billion in US dollar debt, already surpassing 2024’s total of $36 billion. “Over half ($29.3 billion) is from Saudi banks, including $11.7 billion in additional Tier 1 (AT1) and Tier 2 capital,” the agency said.
Subordinated debt now accounts for over 70 percent of Saudi banks’ dollar issuance, up from about 50 percent in 2024, reflecting a move toward riskier instruments that strengthen banks’ capital bases.
Fitch cited several drivers behind the surge. Saudi banks are experiencing the strongest credit growth in the GCC, projected at 12 percent in 2025. This lending boom, which finances large-scale Vision 2030 projects, is outpacing deposit growth and gradually eroding capital buffers.
“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,” the report noted.
Upcoming regulatory changes — including a 1 percent countercyclical buffer from May 2026 and tighter interest-rate risk rules — are expected to add further pressure on capital ratios.
Additionally, financing major Vision 2030 projects carries higher risk weightings under Basel III rules, further straining core capital.
While AT1 instruments continue to dominate non-core capital markets, Saudi banks are also diversifying. They have issued nearly $6 billion in Tier 2 debt in 2025, helping balance their capital structure and attract a broader base of international investors.
Fitch expects issuance momentum to continue into 2026, supported by over $10 billion of maturing debt that needs refinancing, ongoing financing demand, and anticipated lower interest rates.
About $1.8 billion of AT1 instruments reaching their first call date next year are also expected to be redeemed under favorable market conditions.
Fitch Ratings had predicted that GCC banks are set to exceed $60 billion of US dollar debt issuance in 2025, and $40 billion excluding certificates of deposit, surpassing the record levels of 2024.
In a report released earlier this month, the agency said the surge is driven by heightened maturities, strong credit growth and favorable financing conditions.
