Today's Edition
A. SREENIVASA REDDY (ABU DHABI)
Banks in the UAE and Saudi Arabia will continue to benefit from the tailwinds of economic transformation and the expansion of the non-oil sector, S&P Global Ratings said in its latest outlook on GCC banks.
Retail lending in the UAE, which accounted for 27.5% of total credit as of 31 August 2025, will maintain its strong momentum, supported by population growth, positive consumer sentiment and reduced processing times due to digitalisation, the report noted.
“While household leverage has increased consistently in the GCC over the past four years, it remains manageable compared with other emerging markets, particularly considering the high debt-absorption capacity of bankable households,” S&P Global Ratings said.
The macroeconomic environment will also be supported by lower interest rates. S&P expects the US Federal Reserve to cut interest rates by another 75 basis points between now and the end of 2026, with most regional central banks likely to follow.
According to the report, asset-quality indicators across the Gulf continue to strengthen. As of 30 June 2025, the nonperforming loans (NPL) ratio for the top 45 GCC banks fell to 2.7%, while the provision coverage ratio rose to 155.6%. More importantly, the cost of risk dropped to a cyclical low of 46 basis points.
S&P expects these indicators to remain broadly stable, with cost of risk hovering around 50–60 basis points in 2026, absent any unexpected shock.
S&P Ratings’ stress analysis indicates that GCC banks “can collectively absorb a doubling of their current stock of NPLs before starting to show losses.”
The agency added that Gulf banks hold a significant proportion of their assets in liquid form — including interbank placements, central bank deposits and high-quality instruments that can be repoed if needed. As a result, “we think GCC banks have sufficient liquid assets to withstand significant private-sector deposit outflows, which could happen if geopolitical or security risks were to escalate, which is not our base case.”
During the first half of 2025, the top 45 GCC banks “continued to display good and stable financial performance,” posting an average return on assets of 1.7%, supported by higher lending volumes and declining cost of risk.
Capitalisation also remains robust by international standards. GCC banks reported an unweighted average Tier 1 capital ratio of 17% as of 30 June 2025, a level that has remained broadly stable over five years, despite a higher contribution from hybrid instruments in some markets.
S&P Ratings’ broader outlook for 2026 assumes stable financial profiles for rated GCC banks, supported by profitability, asset-quality resilience and solid capital buffers, with 90% of bank ratings carrying a stable outlook.
