Banks in the Gulf Cooperation Council (GCC) can anticipate higher lending growth and a lower cost of risk that will compensate for declining margins throughout 2025, according to S&P Global.
The GCC is a political and economic alignment between the oil-producing Arab nations of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.
“GCC bank margins will decline mainly due to declines in net interest margins as central banks across the region cut their rates to maintain their peg to the US dollar,” the ratings agency said in a note.
“Lending growth will improve in most of the GCC due to strong deposit growth. The cost of risk will decrease for GCC banks due to past precautionary provisioning.
S&P projects that geopolitical risk will remain in check and that even if those issues persist or increase, banks in the region are well-positioned to weather the storm.
“Performance at GCC banks will vary by country. In Kuwait and Qatar, there is apparent overexposure to the real estate sector for lenders.”
Though Kuwait’s easing visa restrictions may increase demand and prices for real estate, for Qatar, much of its real estate is in oversupply due to construction associated with hosting the FIFA World Cup.
“S&P anticipates that lower interest rates will help stimulate demand for Qatari real estate and that interest rate cuts in Bahrain will improve the quality of banks’ real estate assets.”
Qatar, the world’s third-largest LNG producer, has also benefited from strong growth in its hydrocarbon economy, which has helped to support credit growth.
For Saudi Arabia, deposit growth appears to be slowing, increasing reliance on billions in external funding for its Vision 2030 projects.
Meanwhile, banks in the United Arab Emirates have benefited from a strong domestic economy, leading to improved asset quality metrics and lower credit losses.
