A. SREENIVASA REDDY (ABU DHABI)
GCC banks, including those in the UAE, have not reported any major outflows of foreign or local funding despite the ongoing geopolitical tensions, according to a report by S&P Global Ratings.
“While we understand that some “flight-to-quality”movements may already have happened within the different banking systems, to date, banks have not reported any major outflows of foreign or local funding,” S&P Global Ratings said.
The report noted that banks in the region remain well-positioned to navigate potential stress, supported by timely intervention from central banks. Authorities in the UAE, Kuwait and Qatar have introduced relief measures aimed at strengthening liquidity, capital and asset quality.
S&P said these measures “provide some flexibility for banks and additional resources to navigate through the stress” and could prove particularly useful if the situation leads to funding outflows in the coming months.
The Central Bank of the UAE, in particular, has enabled banks to access reserve balances and provided term liquidity facilities in both dirhams and US dollars, while also offering temporary regulatory relief to support funding conditions.
Among the measures announced by the Central Bank of the UAE was flexibility allowing banks to postpone the classification of individual and corporate loans for customers affected by the extraordinary circumstances.
According to the report, GCC central banks have focused their support on ensuring sufficient liquidity and maintaining lending capacity, allowing banks to continue supporting their domestic economies.
S&P Global Ratings also maintained stable outlooks on most GCC banks, citing strong capital buffers and expected government support. The agency noted that regional banks entered the current period of uncertainty from a position of strength, with solid capitalisation and relatively low levels of non-performing loans.
At the same time, the report cautioned that the impact of the geopolitical situation on asset quality and lending growth may become more visible in the coming quarters.
“We expect an increase in cost of risk and a slowdown in lending growth, which will affect banks’ bottom lines,” S&P said.
S&P Global Ratings said governments in the region, particularly the UAE, Kuwait and Qatar, remain highly supportive of their banking systems and are likely to extend extraordinary support if required.
“This assessment is underpinned by the presence of large, liquid government asset buffers and a track record of extending support in previous episodes of stress,” the agency said.
It noted that the UAE’s liquid assets are estimated at about 211% of GDP in 2026, while those of Qatar and Kuwait are estimated at around 181% and 517% of GDP, respectively, with Kuwait’s ratio among the strongest globally.
S&P said the strong net asset positions of these governments provide significant scope to counter volatility, support economic fundamentals and aid recovery during periods of heightened geopolitical uncertainty.
The agency also described Saudi Arabia as “highly supportive” of its banking system, noting that Saudi banks’ external debt exposure is lower than that of some regional peers.