RIYADH: Gulf banks face minimal direct impact from new US tariffs, but remain exposed to broader risks stemming from weaker oil prices and slowing global growth, Fitch Ratings said in a report.

The agency noted that most Gulf Cooperation Council exports to the US are hydrocarbons — which are exempt from the latest tariffs. Non-oil exports, such as aluminum and steel, which are subject to 10 percent or 25 percent duties, account for only a small share of the trade basket, limiting direct exposure for regional economies and their banking sectors. 

However, indirect effects could be more pronounced. “Lower oil prices and weaker global demand are the main risks for GCC bank operating environments,” Fitch said. “Government spending strongly affects bank operating conditions in most GCC countries.”

The comments come as Fitch cut its global gross domestic product growth forecast to 2.3 percent in 2025 and 2.2 percent in 2026, citing increased downside risks. That could drag on oil prices — the primary revenue source for most GCC governments — and constrain public investment, a key driver of credit growth and liquidity in the region’s banking system.

Fitch’s Middle East Banks Outlook 2025, released last December, had forecast lending growth broadly in line with 2024 levels. The latest report suggests that view may be revised down if crude continues to weaken.

OPEC+ had over 6 million barrels per day in spare capacity in January and plans to start unwinding production cuts from April, Fitch said, adding that oil prices will largely depend on the strength of the global economy and supply management by the producer group.

The report also warned that a prolonged drop in fiscal revenues could undermine non-oil GDP growth across the GCC. Fitch had initially projected that non-oil sectors would expand by more than 3.5 percent in both 2025 and 2026, but noted that reduced government spending may weigh on momentum.

Weaker corporate performance, tariff-linked cost pressures, and inflation could also deteriorate credit quality, while uncertainty around interest rates may further strain debt servicing and dampen loan demand, Fitch said.

Still, most GCC banks remain well-capitalized. “Many banks have strengthened their capital buffers in recent years, supported by solid earnings from high oil prices and interest rates, as well as strong liquidity and economic activity,” the agency said.

Among sovereigns, Bahrain’s bank operating environment score — rated ‘b+’ with a negative outlook — is the most vulnerable to a downgrade, Fitch said, citing the country’s weak public finances, high debt, and the region’s highest breakeven oil price. The score is constrained by the sovereign rating of ‘B+/Negative’.

Elsewhere in the region, bank operating environment scores are stable, with Oman the only market carrying a positive outlook. Fitch rates Saudi Arabia and the UAE at ‘bbb+’ with stable outlooks, followed by Qatar and Kuwait at ‘bbb’, and Oman at ‘bb+’.

“These sovereigns benefit from stronger reserves and more flexible fiscal positions,” Fitch said. “That enhances their ability to sustain spending and absorb external shocks.”