GCC banks can endure weaker operating environment in 2H- Fitch

GCC banks’ credit fundamentals should stay resilient through 2H 2026 even as the sector outlook deteriorates, with strong capital and liquidity buffers and healthy asset quality holding up, Fitch Ratings’ Head of Middle East Bank Ratings Redmond Ramsdale said during an episode of Fitch Ratings’ Fixed Interests podcast.

That holds on a couple of conditions… no renewed conflict that damages energy infrastructure and no prolonged closure of the Strait of Hormuz, which, given the most recent turn of events, is looking to be the optimistic view.

The pressure comes from the macroeconomy, not the banking system. Fitch forecasts non-oil GDP growth to contract in Bahrain, Qatar, and the UAE in 2026 and to weaken in Saudi Arabia and Kuwait — only Oman is forecast to grow faster than it did in 2025. For banks, that means lower loan growth than Fitch anticipated in its 2026 sector outlook, alongside moderately weaker asset quality and returns.

Why a weaker sector outlook doesn't mean downgrades: Fitch recently moved its Middle East banks sector outlook to deteriorating from neutral, reflecting macro fallout from the war. That is separate, however, from banks’ credit ratings. Government support underpins more than 85% of GCC banks’ long-term issuer default ratings, so weaker sector conditions don't feed automatically into downgrades. So far, the only conflict-related rating action by Fitch was placing Qatari banks on Rating Watch Negative, mirroring the sovereign.

How the pressure could filter through: Weaker borrower performance is likely to weigh moderately on asset quality, Ramsdale said, particularly in infrastructure, tourism, aviation, logistics, transport, and real estate. The exposure is contained: tourism accounts for less than 3% of bank books, while SME portfolios — though more vulnerable to asset-quality pressure — are also relatively small.

Funding and liquidity, meanwhile, have largely normalized. GCC capital markets have recovered from the initial conflict-driven sell-off, and major issuers have returned to public debt markets after a brief pause, including in the subordinated space, at minimal added risk premium.

What to watch: Fitch’s resilience call rests on the ceasefire holding, which, as of yesterday, isn’t. A return to conflict that hits energy infrastructure or closes Hormuz would push the pressure from the macro level down to the banks themselves.