Gulf Cooperation Council banks may shift to private loans amid West Asia conflict: Fitch Ratings
New Delhi, May 14
Banks across the Gulf Cooperation Council are likely to shift their focus toward private placements and syndicated loans if the conflict involving Iran continues, according to a recent report from Fitch Ratings.
"GCC banks are likely to make greater use of private placements and syndicated loans if the Iran conflict persists," it noted. "Even if conditions stabilise and public markets reopen, we expect 2026 issuance to remain below 2025's record level because of weaker credit growth and wider credit spreads."
The credit rating agency stated that liquidity conditions for GCC banks face potential deterioration if the current conflict proves more severe or prolonged than initially projected. Despite these pressures, the report highlighted that the banks maintain robust liquidity buffers.
Furthermore, expected support from regional authorities regarding capital and liquidity is likely to reduce the risks associated with their credit profiles.
"We expect private placements will be the main funding channel for GCC banks this year if the conflict persists, but if geopolitical conditions improve, banks will likely return to public markets," the report added.
Signs of investor appetite remained visible despite the geopolitical backdrop. The Emirates NBD Bank's additional Tier 1 (AT1) transaction in early May serves as a key indicator of market interest. As the first public US dollar debt issuance by a GCC-based bank after the start of the conflict, the offering was nearly three times oversubscribed. It drew significant demand from both regional and international investors and was priced without a new issue premium.
The report explained that the total regional issuance will also be dampened by a projected slowdown in Saudi Arabian bank dollar debt. This trend follows a period of front-loading capital issuance in 2025 and slower loan growth.
Conversely, issuance from UAE banks is expected to rise due to maturities totalling approximately USD 4.4 billion. In Kuwait, refinancing needs remain concentrated in AT1 instruments, which are heavily dependent on the status of public market access.
"We believe the resilience of GCC banks' AT1 instrument pricing partly reflects a tendency towards buy-and-hold strategies among sharia-compliant investors; almost 65% of GCC bank AT1s are sukuk," the report noted.
Data from the first four months of 2026 showed that dollar debt issuance, excluding certificates of deposit, reached about USD 17.5 billion. This marks a 20 per cent increase compared to the previous year, largely driven by high activity in January.
"Senior notes, mostly from UAE and Qatari banks, were 41% of issuance, followed by 35% from CDs, mainly from Saudi banks, and 24% from AT1 and Tier 2 instruments, also mostly from Saudi Arabia," the report said.
The ratings agency also observed that roughly USD 10 billion of dollar AT1 instruments reach their first call dates in 2026. The risk of these not being called is considered very low, given the high capital ratios maintained by UAE and Kuwaiti banks at the end of 2025.
"Banks' access to other funding channels remains strong. GCC banks have raised about USD2.3 billion in syndicated loans year-to-date, supported by strong regional liquidity and continued foreign investor appetite," the report stated.
— ANI
Reader Comments
The oversubscription of Emirates NBD's AT1 bond shows that investors still have appetite, albeit cautiously. It's a positive sign for regional resilience. But I worry about the broader economic impact on the expat workforce in the Gulf, many of whom are Indians. If growth slows, jobs could be at risk.
The report's mention of sukuk being preferred by sharia-compliant investors is key—Islamic finance offers a buffer. But I'm curious how this will impact Indian banks that have branches in the GCC or lend to Gulf-based entities. We need to keep an eye on our own exposure, especially with the Iran situation.
Saudi bank issuance front-loading last year makes sense—they wanted to lock in capital before the turmoil. But a slowdown there could hit Indian contractors working on Saudi projects. Also, the UAE issuing more debt might mean more opportunities for Indian investors in those bonds.
I think it's a prudent move to rely on private placements and syndicated loans during uncertainty. Public markets can be volatile. But I'm a bit concerned about the RBI's policy here—India should maybe diversify its forex reserves away from over-reliance on Gulf currencies if things get rocky.
The $2.3 billion raised in syndicated loans so far is reassuring—it shows there's still confidence. However, the risk of AT1 bonds not being called is low, but if something goes wrong, it could ripple into global markets. India's banking sector should be prepared for any contagion.
We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.