RIYADH: Banks across the Gulf Cooperation Council are expected to maintain stable credit fundamentals in 2026, even as the region continues to face potential geopolitical and economic shocks, according to S&P Global Ratings.
In a new report titled “GCC Banks Show Stable Credit Fundamentals Despite The Overhang Of Event Risks,” the agency said the sector’s outlook is supported by broadly steady profitability, solid capitalization and resilient asset quality.
The baseline scenario foresees stable financial profiles for rated GCC banks, underpinned by an average long-term rating of A-, a slight improvement over the previous year following upgrades to banks in Saudi Arabia and the UAE.
In its latest report, the agency stated: “90 percent of our rating outlooks are stable and 10 percent are negative, for idiosyncratic reasons.”
This stability, however, is conditional on the avoidance of a major regional conflict or a sharp, prolonged drop in oil prices, which are identified as the two primary downside risks.
It added that while geopolitical tensions have periodically surfaced — including attacks on Qatar in 2025 — such events have so far been contained and short-lived. The impact of any future escalation would depend on transmission effects to oil exports, capital flows, tourism activity and investor confidence.
Lending growth across the GCC is two-paced, largely driven by non-oil sector dynamics. S&P added: “We forecast the oil price to stabilize at about $60 per barrel in 2026 (Brent) and for the six GCC countries we anticipate unweighted average economic growth of 3.1 percent in 2026, up from 2.9 percent in 2025.”
Banks in Saudi Arabia are benefiting from corporate lending tied to Vision 2030 projects, while lenders in the UAE are seeing retail loan growth supported by population gains and improved consumer sentiment.
The report confirmed that household leverage in the GCC, while having increased, remains manageable compared to other emerging markets.
In other nations, Qatar’s expected increase in gas production will boost national accounts but may not immediately create significant opportunities for banks. Banks in Bahrain face headwinds from softer growth, while Kuwait and Oman are supported by reform implementation, investments, and non-oil expansion.
Lower interest rates, mirroring expected cuts by the US Federal Reserve, are also anticipated to support lending growth region-wide.
As of June 30, the nonperforming loan ratio for the top 45 banks stood at 2.7 percent, with provision coverage at 155.6 percent and cost of risk at 46 basis points. S&P expects cost of risk to normalize to 50–60 bps in 2026, while noting latent risks including more than $700 billion in net new lending over the past five years that has yet to be tested through a full economic cycle. The report also flagged vulnerabilities tied to banks with exposure to Turkiye and Egypt.
A key trend identified is the increasing reliance on external funding, particularly in Bahrain and Saudi Arabia, where domestic deposit growth is insufficient to fund asset expansion. Bahrain’s external debt has doubled since 2022, while Saudi banks are tapping international markets to finance Vision 2030.
S&P conducted stress tests which showed that all GCC banking systems, except Qatar, could withstand substantial capital outflows using their own foreign assets. Qatar showed a manageable shortfall of $3 billion, significantly lower than previous government support and a reduction from 2024.
Profitability remains healthy, with the top 45 GCC banks recording an average return on assets of 1.7 percent in the first half of 2025, though S&P expects a slight decline in 2026 as interest rates fall. Capitalization is strong, with an average Tier 1 ratio of 17 percent, although the share of hybrid instruments is rising, particularly in Saudi Arabia.
S&P concluded that government support assumptions remain intact, noting highly supportive stances in four of the six GCC markets, while support is viewed as less certain in Bahrain and Oman due to more limited sovereign capacity.
