Gulf banks have faced operational risks and financial pressures on their balance sheets since the outbreak of the regional conflict, S&P Global Ratings said.
However, business continuity plans have helped maintain operational effectiveness, and potential funding outflows remain manageable for now, although the long-term impact on asset quality is still uncertain.
In its report, the agency said its base-case scenario assumes the most intense phase of the conflict will last between two and four weeks, with broader repercussions and sporadic security incidents potentially persisting for a longer period.
It also highlighted a high degree of uncertainty regarding the full extent of the conflict’s credit implications.
S&P noted that Gulf banks have not yet experienced significant outflows of either foreign or domestic funding.
However, if the conflict persists, there could be a shift toward safe-haven assets within domestic banking systems, alongside potential external and local funding outflows.
Under its stress-testing scenarios, the agency assumes both foreign and domestic capital outflows. It indicated that banks’ external liquidity could absorb a significant hypothetical outflow of foreign funding without government or external support in all countries except Bahrain and Qatar.
The stress test suggests that domestic deposit outflows could reach up to $307 billion, while banks hold around $312 billion in cash or reserves with central banks to cover such flows.
Banks may also need to liquidate some investments or place them with central banks to maintain liquidity.
Overall risks appear manageable. After liquidating investment portfolios—with a 20% haircut applied—banks would have about $630 billion in total available liquidity.
Four out of the six GCC countries are expected to provide strong support to their banking systems, including extraordinary support if needed.
S&P expects the conflict to affect key economic sectors, including logistics, transport, tourism, and consumer-driven industries such as real estate, retail, and hospitality. The full impact on banks’ asset quality indicators is likely to take time to materialize.
The agency also forecasts some deterioration in banks’ financial performance in 2026, with the extent depending on the duration of the conflict and its impact on local economies.
Despite these challenges, Gulf banks are entering this period with strong capital bases and solid asset quality. In its high-stress scenario, S&P assumes either a 50% increase in non-performing loans (NPL) or an NPL ratio of 7% of total loans, whichever is higher.
Under this scenario, banks are assumed to fully provision for NPLs using existing buffers, resulting in cumulative losses of about $37 billion for the largest 45 banks across GCC countries, compared to a net income of roughly $66 billion at the end of 2025, with many banks expected to report losses.
Finally, S&P noted that regulators have previously intervened during shocks by introducing support measures, enabling banking systems to absorb potential declines in loan values over time. Similar actions are expected in the event of a comparable shock.