Saudi banks have sold $4.2 billion of additional tier-1 (AT1) sukuk year-to-date through August 27, more than double the $2.0 billion issued in the same period of 2024, according to S&P Global Ratings. Total sukuk issuance by banks reached $9.5 billion versus $5.3 billion a year earlier, with five AT1 deals completed and more in the pipeline. The instruments are being used to raise external funding while supporting regulatory capital ratios, S&P said.
Most AT1 issuance this year has been in US dollars, broadening the investor base; pricing has been close to riyal-denominated transactions given the SAR-USD peg. Saudi Awwal Bank was among the recent local AT1 issuers, listing a subordinated perpetual sukuk that pays 6.98%.
S&P said the average coupon on Saudi banks’ dollar AT1s was about 6.4%, compared with about 5% on five-year senior sukuk. A prospective 50 bp US Federal Reserve rate cut later in 2025, now expected by several sell-side houses, would likely lower banks’ funding costs, including hybrids.
Capital buffers remain strong. Saudi banks recorded a total capital adequacy ratio of around 19.3% by mid-2025. S&P estimates AT1s now equal roughly 22% of reported common equity on average (about 18% for its rated cohort). S&P classifies most Saudi AT1s as instruments with intermediate equity content in its risk-adjusted capital model, counting them in total adjusted capital up to 33% of adjusted common equity.
External funding has risen but remains limited in system terms. S&P noted banks moved from a small net external asset position at the end of 2024 to a net external debt by mid-2025, while keeping the ratio manageable versus total lending. Credit growth continues alongside Vision 2030 projects; SAMA data show claims on the private sector and total system assets rising through June.
S&P said banks’ profitability is solid, with return on assets at about 2.3% by June 30, and expects dividend payout ratios near 50% to support capital over the next 12–24 months.
