Saudi National Bank’s SAR-denominated AT1 Sukuk: A Strategic Move to Strengthen Capital and Align with Vision 2030

Saudi National Bank (SNB), the Kingdom’s largest banking institution, has launched a SAR-denominated Additional Tier 1 (AT1) Sukuk offering, marking a critical step in its capital-strengthening strategy. The initiative, part of broader efforts to meet Basel III regulatory requirements and support Saudi Vision 2030, underscores SNB’s resilience and ambition in a rapidly evolving financial landscape.

Regulatory and Strategic Imperatives

The Sukuk issuance aligns with SNB’s commitment to maintaining robust capital buffers under the Basel III framework, which mandates a minimum Common Equity Tier 1 (CET1) ratio of 7% to 10.5% for global systemically important banks (G-SIBs). SNB, which merged with Samba Financial Group in 2021 to become the largest bank in Saudi Arabia, faces heightened scrutiny to ensure its capital adequacy. The SAR-denominated structure also reflects a strategic pivot toward deepening domestic capital markets—a cornerstone of Vision 2030’s economic diversification agenda.

The bank’s interim 2024 financial results highlight its strong foundation: net profits rose 2.3% year-on-year to SAR10.3 billion, while total assets expanded 4.9% to SAR1.088 trillion. These figures bolster investor confidence in SNB’s capacity to absorb risks and sustain growth.

Structure and Terms of the Offering

SNB’s November 2024 issuance of a SAR6 billion AT1 Sukuk Wakala, priced at a fixed 6.00% coupon through 2029, set the stage for its 2025 follow-up. The 2025 offering, open to institutional and qualified investors, requires a minimum subscription of SAR1 million and carries a perpetual tenor with optional redemption clauses. Key terms include:

• Coupon Rate: Fixed at 6.00% for the first five years, with resets every five years thereafter.
• Maturity: Perpetual, subject to SNB’s right to call the Sukuk after five years.
• Regulatory Compliance: Structured under Islamic Mudarabah principles, ensuring Sharia compliance while meeting international capital standards.

The 2025 offering’s flexibility—terms contingent on market conditions—allows SNB to optimize costs in a fluctuating interest rate environment. The Sukuk’s listing on Tadawul enhances liquidity, appealing to both domestic and regional investors.

Market Implications and Investor Considerations

The Sukuk issuance signals SNB’s confidence in Saudi Arabia’s economic trajectory. By diversifying its funding sources, the bank reduces reliance on traditional deposits and positions itself to capitalize on opportunities in infrastructure, SME lending, and digital finance.

Investors should note:
1. Risk-Return Profile: AT1 instruments typically offer higher yields than senior debt but rank lower in priority during liquidation. The 6.00% coupon competes favorably with regional benchmarks.
2. Regulatory Tailwinds: SNB’s alignment with Vision 2030 goals may attract sovereign and institutional investors seeking exposure to Saudi Arabia’s growth story.
3. Currency Exposure: The SAR-denominated structure mitigates foreign exchange risks for domestic investors.

Conclusion: A Pillar of Financial Stability

SNB’s SAR-denominated AT1 Sukuk offering is a strategic masterstroke, balancing regulatory compliance with capital optimization. With a 6.00% coupon and perpetual tenor, the instrument offers attractive risk-adjusted returns while reinforcing SNB’s role as a pillar of Saudi Arabia’s financial system.

The bank’s 2024 performance—bolstered by a 7.2% rise in customer deposits to SAR633 billion—provides a sturdy foundation for future growth. By deepening domestic capital markets and adhering to Basel III standards, SNB not only strengthens its own resilience but also supports the Kingdom’s Vision 2030 objectives. For investors, the Sukuk represents a compelling opportunity to participate in Saudi Arabia’s economic evolution, backed by a lender whose financial health and strategic foresight are unmatched in the region.

In a landscape where capital adequacy and regulatory alignment are paramount, SNB’s move underscores its status as a leader capable of navigating both local and global challenges.