GCC banks are heading into 2026 with stable credit fundamentals, strong capital buffers and resilient profitability, according to S&P Global Ratings, which cautions that geopolitical tensions and oil-price volatility remain the main risks to the sector.
In its latest regional assessment, S&P noted that 90% of bank ratings across the Gulf carry a stable outlook, reflecting solid economic performance and conservative regulatory frameworks.
Analysts Mohamed Damak and Tatjana Lescova said regional lenders are positioned to absorb shocks, supported by “broadly stable profitability, supportive asset quality and strong capitalization.” Damak added that the base scenario assumes no major geopolitical escalation and no prolonged drop in oil prices, both of which remain key downside risks.
Geopolitical and Oil-Price Risks Remain Watchpoints
S&P highlighted two main stress scenarios:
- A significant regional conflict that disrupts macroeconomic conditions
- A sharp fall in oil prices driven by weaker global demand or oversupply
Lescova noted that while recent geopolitical events — including the 2025 attacks on Qatar — were brief, the impact of future incidents would depend on their scale and duration, as well as implications for oil flows and investor sentiment.
External Funding Needs Rising
Across the Gulf, external funding pressures are increasing. Bahrain and Qatar continue to carry higher levels of external debt through non-resident deposits, while Saudi banks are expected to rely more on international debt markets to support financing needs for Vision 2030 megaprojects.
Despite this, the region continues to attract strong capital inflows, supported by high oil revenues and diversification initiatives.
S&P’s average long-term rating for GCC banks stands at A-, slightly higher than last year, following upgrades to major banks in Saudi Arabia and the UAE.
UAE Banking Outlook Remains Strong
S&P expects UAE banks to continue benefiting from robust non-oil economic growth, strong population expansion, and rising demand for credit — particularly in retail lending, which accounted for 27.5% of total lending as of August 2025.
Damak said the UAE’s digital transformation in loan processing, risk assessment and customer onboarding has helped accelerate lending while keeping cost structures efficient.
Economic activity across the Gulf is projected to strengthen. S&P forecasts Brent oil at around US$60 per barrel in 2026 and expects average real GDP growth of 3.1% across the GCC, with the UAE outperforming due to momentum in tourism, real estate, trade and advanced technology sectors.
Asset Quality Continues to Improve
As of June 2025, the non-performing loan ratio for the region’s top 45 banks fell to 2.7%, with loan-loss provision coverage rising to 155.6%.
The cost of risk dropped to 46 basis points, supported by recoveries, write-offs and stable operating environments. S&P expects asset quality to remain broadly resilient in 2026, with cost of risk projected between 50 and 60 basis points.
However, the agency warned of “latent risks.” GCC banks have extended over $700 billion in new loans over the past five years, exposing them to credit risks that have not been fully tested through a complete economic cycle.
Risks also linger in international exposures:
- Türkiye: potential rise in credit card and personal loan defaults
- Egypt: outlook improving as interest rates fall and SME credit strengthens
Capital Buffers Remain a Strength
GCC banks maintain an average Tier-1 capital ratio of 17%, among the strongest globally. While hybrid instruments have increased — particularly in Saudi Arabia, where they represent 22% of common equity — S&P does not expect this trend to weaken sector stability.
Lescova concluded:
“The fundamentals are strong, but event risk is an ever-present factor in the Gulf. Banks that maintain prudent underwriting and strong liquidity will be best positioned to navigate any turbulence ahead.”
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