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GCC corporates are increasingly relying on bank loans and short‑dated facilities as US dollar–denominated bond and sukuk markets remain at a near-standstill amid risk aversion and volatility linked to the war in the Middle East.
In a tentative sign of reopening, Emirates NBD, Dubai’s biggest lender, priced a US dollar benchmark perpetual non‑call six AT1 hybrid on Tuesday.
However, if current conditions persist and dollar debt markets remain muted for an extended period, corporates are expected to “increasingly tap banks to bridge their funding requirements,” according to a Dubai‑based banker.
“It is still relatively early – only around 60 days into the current hiatus – so there hasn’t been a large number of new borrowers coming to market via loan structures,” he said.
Regional companies have traditionally depended on bank financing, although in recent years some of the larger corporates have tapped the sukuk and bond markets. Nevertheless, bank loans remain comparatively cheaper, easier to get and much faster to execute. While they typically have a gestation period of up to three months before completion, refinancing transactions – of which there have been a slew in recent weeks – is a far simpler process.
Many corporates in need of funding are drawing down on existing credit facilities and liquidity buffers already in place, the banker added.
Bashar Al Natoor, global head of Islamic finance at Fitch Ratings, said most corporates in the region remain predominantly reliant on bank funding rather than capital markets issuance as their primary source of financing. As a result, the current disruption in sukuk and bond markets has had a limited near‑term impact on the funding profiles of most issuers.
“However, for issuers with refinancing or growth plans, sustained volatility introduces greater uncertainty around the timing of future issuance. Prolonged market inactivity may lead to greater reliance on bank financing over time, potentially at higher cost or under tighter terms, depending on liquidity conditions and banks’ risk appetite,” he said.
The implications for loan markets of an extended conflict are unclear. “Outcomes will depend on a range of factors, including macroeconomic conditions, banking sector liquidity and risk tolerance, and the broader geopolitical trajectory. At present, visibility on how these variables may evolve is limited,” Al Natoor added.
Chiro Ghosh, group head of research at Bahrain‑based SICO Bank, said companies involved in trade, manufacturing or cross‑border activity are making greater use of short‑dated bank instruments to navigate current market conditions. Sectors linked to population flows and consumption, such as real estate, tourism and aviation, are also seeing increased reliance on bank facilities.
The key question is whether banks are willing to extend credit under the current circumstances. “Of course, they will rely heavily on a borrower’s track record, but the bigger issue is whether the company will be able to export its product in the near term. That uncertainty matters,” Ghosh said.
“Banks are likely to seek more collateral and stronger assurances because timelines are unclear. If the disruption lasts three weeks or a month, banks can plan around that. But when the timeframe is open‑ended, banks will take a deeper look before disbursing loans,” he added.
(Reporting by Brinda Darasha; editing by Seban Scaria)
