Saudi Arabia’s listed banks have announced SAR30.75bn ($8.2bn) of sukuk issuance since the start of 2026, accelerating their use of capital markets as strong credit demand reshapes the sector’s traditionally deposit-led funding model.
The total comprises SAR16.31bn of riyal-denominated issuance and $3.85bn of dollar sukuk, with annual yields on priced transactions ranging from 6.15% to 6.625%. Much of the issuance consists of Additional Tier 1, or AT1, instruments, highlighting that banks are reinforcing regulatory capital as well as diversifying funding.
Riyad Bank leads 2026 issuance with SAR10bn, equivalent to about one-third of the total, followed by Al Rajhi Bank with roughly SAR6bn through two transactions and Alinma Bank with about SAR4.88bn. Riyad Bank’s AT1 offering attracted subscriptions worth SAR 13.59bn, around 2.7 times its initial SAR5bn issue size, underscoring investor demand.
The issuance wave reflects a longer-term shift in Saudi bank balance sheets as lending expands alongside the Kingdom’s infrastructure, corporate and investment programmes. Customer deposits were equivalent to 94.6% of net loans at end-2025, down from 101.5% in 2023 and 115.7% in 2016, according to the IMF. Demand deposits — traditionally among banks’ cheapest sources of funding — fell to 49% of total deposits, from 66% in 2020.
That erosion of the traditional deposit cushion is pushing banks towards a broader mix of sukuk and other market funding. AT1 instruments also help banks maintain capital capacity as their risk-weighted assets grow. The Saudi Central Bank raised the countercyclical capital buffer from zero to 1% of risk-weighted assets from May 25, 2026, adding another incentive to reinforce capital.
The trade-off is cost. Securities yielding above 6% are substantially more expensive than non-interest-bearing demand deposits, increasing banks’ marginal funding costs and placing greater emphasis on loan pricing and margins as credit expansion continues.
The shift, however, reflects funding optimization rather than financial distress. Saudi banks entered 2026 with an average capital adequacy ratio of 20.5%, Tier 1 capital of 18.8% and non-performing loans at just 1% of total lending. The IMF said liquidity ratios remained well above regulatory minimums and described the sector as supported by strong capital and liquidity buffers.
The SAR30.75bn sukuk wave therefore points to a broader structural transition: Saudi banks are moving beyond predominantly deposit-funded expansion towards a more diversified model combining deposits, capital markets and regulatory capital to sustain the financing requirements of Vision 2030.
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