Gulf banks show resilience despite rising regional and global risks. Their strong profitability, solid capital, and improving asset quality keep stability high. Meanwhile, international market financing increasingly funds their growth. Analysts warn that geopolitical tensions and oil price swings remain important risks.
During 2025, limited regional tensions helped maintain investor confidence. Any escalation, however, could disrupt oil exports, capital flows, and market sentiment. The impact depends on duration and severity. Most Gulf banks keep a stable credit outlook. Only a small number face negative prospects due to internal weaknesses.
Economic growth trends also support banks. Oil prices should stabilize near sixty dollars per barrel in 2026. Non-oil growth across GCC countries should reach around 3.1 percent. These trends boost lending activity. In Saudi Arabia, Vision 2030 drives corporate lending. In the UAE, population growth and digital services increase personal loans. Together, these factors strengthen banking operations.
GCC household debt rose in recent years but remains manageable compared with other emerging markets. Asset quality improved, with non-performing loans falling to 2.7 percent by mid-2025. Provision coverage ratios now exceed 155 percent. Banks expect risk costs to stay between 50 and 60 basis points. Still, some lending portfolios remain untested across full economic cycles, making them sensitive to global slowdowns and oil price shocks.
External funding is crucial in Bahrain and Saudi Arabia, where banks rely more on international market financing to grow assets. This reliance increases exposure to market volatility. Stress tests indicate most Gulf systems, except Qatar, can handle funding shocks using liquid assets. Profitability may decline slightly due to lower interest rates and increased spending on digital platforms and cybersecurity.
Capital levels remain strong, with Tier 1 ratios averaging 17 percent. Hybrid instruments play a larger role, especially in Saudi Arabia. Government support also underpins banking stability, particularly in Bahrain and Oman. Overall, Gulf banks balance risks with strong fundamentals. As international market financing grows, their resilience remains the sector’s defining strength heading into 2026.
