GCC Banks Expected To Maintain Stable Credit Fundamentals In 2026 – S&P

The report notes that 90 per cent of rated GCC banks currently hold a stable outlook, with only two banks on negative outlook due to company-specific factors. S&P said the outlook assumes no prolonged geopolitical escalation or sharp and sustained drop in oil prices, both of which remain key downside risks.

“GCC banks’ credit fundamentals remain resilient, underpinned by supportive economic growth, government backing, and solid capital buffers,” said Mohamed Damak, Primary Credit Analyst at S&P Global Ratings. “However, event risks — particularly those tied to geopolitical developments or oil market shocks — continue to warrant close monitoring.”

The agency expects GCC economic growth to average 3.1 per cent in 2026, with oil prices stabilising at around $60 per barrel (Brent). Lending growth is set to be driven by Saudi Arabia’s Vision 2030 projects and strong retail demand in the UAE, supported by population growth and ongoing digitalisation of financial services.

Asset quality indicators are at cyclical lows, with the region’s top 45 banks reporting a nonperforming loan (NPL) ratio of 2.7 per cent as of mid-2025. S&P expects these indicators to remain stable through next year, with cost of risk hovering between 50–60 basis points.

While domestic deposits remain the main funding source, the report highlights increasing reliance on external funding in Bahrain, Saudi Arabia, and Qatar. In Saudi Arabia, banks are expected to continue accessing international debt markets to fund Vision 2030 projects amid slower domestic deposit growth.

Profitability is projected to soften slightly as lower interest rates take effect, but efficiency gains, digital transformation, and AI-driven risk management are expected to support overall stability. The average return on assets (ROA) for the region’s largest banks stood at 1.7 per cent in the first half of 2025.

S&P Global Ratings also emphasised the ongoing strength of GCC banks’ capitalisation, with an average Tier 1 capital ratio of 17 per cent as of June 2025, among the highest globally.

Despite strong fundamentals, S&P cautioned that geopolitical volatility, regional conflicts, or a sustained fall in oil prices could disrupt the outlook. However, the agency continues to factor in significant government support across most GCC markets, with Saudi Arabia, the UAE, Qatar, and Kuwait viewed as the most capable of providing assistance if needed.

The report concludes that, barring external shocks, GCC banks are well-positioned for another year of stable credit performance in 2026, driven by economic diversification, robust capital levels, and prudent risk management.