Gulf lenders shift funding playbook

Gulf banks are preparing to lean more heavily on private placements and syndicated loans as the Iran conflict continues to unsettle public debt markets and reshape funding plans across the region.

Fitch Ratings said lenders in the Gulf Cooperation Council are likely to use quieter, negotiated channels if market volatility keeps public bond windows narrow. Private placements by Gulf banks have already exceeded $4.3 billion this year, mostly through senior debt, while syndicated loans have reached about $2.3 billion, supported by regional liquidity and continued appetite from overseas investors.

The shift marks a tactical departure from the active public issuance seen at the start of 2026, when banks took advantage of calmer markets before the conflict widened risk premiums. Dollar debt issuance by Gulf banks, excluding certificates of deposit, reached about $17.5 billion in the first four months of the year, up roughly 20 per cent from a year earlier. Including certificates of deposit, issuance stood near $27 billion.

Senior notes accounted for 41 per cent of that supply, led largely by lenders in the UAE and Qatar. Certificates of deposit made up 35 per cent, mainly from Saudi banks, while Additional Tier 1 and Tier 2 instruments represented 24 per cent, with Saudi Arabia again prominent in the capital-raising mix. The composition shows that banks entered the year with funding needs still intact, but the preferred routes are changing as investors price geopolitical risk more cautiously.

Credit spreads widened across most of the capital structure after the conflict began, before partly tightening. Between late February and the end of April, senior and Tier 2 spreads widened by an average of 6 basis points, while AT1 spreads narrowed by about 12 basis points. The relative resilience of AT1 pricing reflects buy-and-hold behaviour among Shariah-compliant investors, expectations of state support, strong capital buffers and the assumption that many instruments will be called at the first reset date. Nearly 65 per cent of Gulf bank AT1 instruments are sukuk.

Saudi banks are expected to reduce dollar issuance more sharply than earlier projections as loan growth moderates. That adjustment comes after a period of strong credit expansion that pushed funding needs higher and widened the gap between loans and deposits. Fitch has warned that a prolonged conflict could place pressure on Saudi bank viability ratings if liquidity stress becomes more severe, although strong capital positions and official support remain important buffers.

UAE lenders face a different funding profile. They may increase supply to refinance about $4.4 billion of maturing debt, making them more likely to remain visible in debt markets even as issuance conditions fluctuate. Qatar-based banks are also expected to remain active where refinancing needs and investor demand allow negotiated deals to proceed without the full exposure of public syndication.

Syndicated financing is gaining ground because it offers privacy, execution certainty and more flexible documentation than public bond sales. Shariah-compliant syndications have become especially important, with Islamic syndicated financing reaching $23 billion in the first quarter of 2026, surpassing dollar sukuk issuance of $20 billion and rising sharply from the previous year’s level. Islamic syndications now represent about half of Gulf syndication issuance, up from 35 per cent in 2025.

The broader debt capital market remains vulnerable to conflict-related repricing. Gulf debt capital market spreads touched a five-year high during the war, although they remained below pandemic levels. Outstanding Gulf debt capital market instruments stood at about $1.2 trillion by late March, up 14 per cent year on year, with sukuk accounting for 41 per cent.

Private placements have also been used by regional sovereigns and state-linked borrowers as public markets turned more difficult. Gulf borrowers raised more than $10 billion in private markets during a short period of heightened stress, with global banks advising on several transactions. Standard Chartered said Gulf fundraising helped lift advisory income, even as it booked a $190 million charge linked to the conflict’s potential credit impact.

Bank liquidity conditions could weaken if the conflict lasts longer or becomes more severe, but large holdings of investment-grade securities provide scope for repo funding. Strong domestic deposit bases, state ownership links and access to official liquidity channels continue to limit immediate pressure on credit profiles.