GCC Banks Post Strong H1 2025 Results With 13.2% ROE Despite Margin Pressure

Profitability and asset quality improved even as interest rate cuts and tighter liquidity began to weigh on margins.

The report noted that the GCC economy is forecast to expand by 3 per cent in 2025 and 4.1 per cent in 2026, supported by infrastructure investment, diversification initiatives, and private sector growth.

GCC banking growth

Oil GDP is expected to increase by 1.7 per cent in 2025 before accelerating to 5.4 per cent in 2026, with non-oil activity continuing to drive regional growth.

Mayur Pau, EY MENA Financial Services Leader, said: “The first half of 2025 demonstrates the resilience of the GCC banking sector. With solid capital buffers, healthier balance sheets and improved efficiency, banks are well-positioned to navigate near-term pressures and pursue long-term opportunities.

“As digital adoption, sustainability and regulatory readiness advance, the sector will continue to play a central role in supporting the region’s economic transformation.”

The sector’s average return on equity (ROE) stood at 13.2 per cent, supported by higher non-interest income and efficiency gains.

The cost-to-income ratio improved to 32 per cent, reflecting operational optimisation and digitalisation.

Asset quality strengthened, with non-performing loans declining to 2.4 per cent from 2.8 per cent a year earlier.

Coverage ratios remained above 140 per cent, while capitalisation was reinforced with an average Tier 1 ratio of 17.5 per cent and a capital adequacy ratio of 18.9 per cent, underlining the sector’s resilience.

Margin and liquidity pressures

Despite strong fundamentals, banks faced pressures from rate cuts and tighter funding conditions. Net interest margins eased to 2.6 per cent in H1 2025, down from 2.8 per cent in the same period last year, with further compression expected after September 2025 reductions.

Liquidity also tightened, with the loan-to-deposit ratio rising to 94.1 per cent from 90.7 per cent in H1 2024.

Mayur Pau added: “Bank profitability remains intact, underpinned by rising non-interest income and stable asset quality. Credit growth remains solid, particularly in the Kingdom of Saudi Arabia and the United Arab Emirates, where transformation agendas continue to drive lending activity.

“However, net interest margins are under pressure following rate reductions implemented in late 2024, which triggered loan repricing at lower yields. This trend is expected to persist with further rate cuts announced in September 2025.

“However, banks are actively diversifying revenue streams and enhancing operational efficiency to sustain profitability.”

Transformational shifts

EY highlighted that banks are adapting to long-term structural changes by embedding sustainability, accelerating digital transformation, and preparing for evolving regulatory requirements.

Adoption of AI-driven banking, enhanced digital customer platforms, and compliance with Basel III and AML/CFT frameworks remain priorities.

According to the report, these initiatives are reshaping business models and positioning GCC banks for long-term competitiveness in an environment of rapid economic diversification and technological change.