Fitch Ratings said falling oil prices and soft global demand are the main risks facing banking environments in the Gulf Cooperation Council (GCC).
The agency noted that government spending continues to significantly shape bank operating conditions in most GCC countries.
In a new report, Fitch warned that any additional decline in oil prices would weaken its 2025 loan growth forecasts, which are currently aligned with 2024 levels.
The agency said US tariffs are unlikely to have more than a modest direct impact on GCC banking environments. It explained that non-hydrocarbon exports are relatively less exposed, limiting the direct economic effects of tariffs on GCC economies and their banks.
However, Fitch warned that credit conditions could worsen if companies in affected sectors see weaker profitability and cash flow due to higher operating costs and tariff-induced inflation.
It also said corporates could face higher debt costs given the uncertainty around interest rates and the possible delay in rate cuts. This pressure may dampen overall credit demand and eventually lead to higher credit risk and non-performing loans.
Still, GCC banks are generally well-positioned to weather any operating environment deterioration. Many have built up capital buffers in recent years, supported by strong profits from high oil prices, elevated interest rates, solid liquidity, robust economic activity, and favorable credit conditions.
Fitch identified Bahrain as the most at-risk banking environment in the GCC, due to weak public finances, high debt levels, and the highest fiscal breakeven oil price in the region.
Banking environments in other GCC countries have stable outlooks, with Oman rated positively.
Fitch said the UAE and Saudi Arabia offer the most favorable banking conditions, earning the highest operating environment scores in the bloc.
Fitch Ratings said falling oil prices and soft global demand are the main risks facing banking environments in the Gulf Cooperation Council (GCC).
The agency noted that government spending continues to significantly shape bank operating conditions in most GCC countries.
In a new report, Fitch warned that any additional decline in oil prices would weaken its 2025 loan growth forecasts, which are currently aligned with 2024 levels.
The agency said US tariffs are unlikely to have more than a modest direct impact on GCC banking environments. It explained that non-hydrocarbon exports are relatively less exposed, limiting the direct economic effects of tariffs on GCC economies and their banks.
However, Fitch warned that credit conditions could worsen if companies in affected sectors see weaker profitability and cash flow due to higher operating costs and tariff-induced inflation.
It also said corporates could face higher debt costs given the uncertainty around interest rates and the possible delay in rate cuts. This pressure may dampen overall credit demand and eventually lead to higher credit risk and non-performing loans.
Still, GCC banks are generally well-positioned to weather any operating environment deterioration. Many have built up capital buffers in recent years, supported by strong profits from high oil prices, elevated interest rates, solid liquidity, robust economic activity, and favorable credit conditions.
Fitch identified Bahrain as the most at-risk banking environment in the GCC, due to weak public finances, high debt levels, and the highest fiscal breakeven oil price in the region.
Banking environments in other GCC countries have stable outlooks, with Oman rated positively.
Fitch said the UAE and Saudi Arabia offer the most favorable banking conditions, earning the highest operating environment scores in the bloc.
