Regulators move to shore up bank liquidity as conflict enters second month

Central banks across MENA are handing down rules they hope will protect bank balance sheets and keep credit flowing as the war in the Gulf passes the one-month mark. Fitch Ratings previously estimated GCC banks’ existing buffers could contain credit risks for one month, while Bloomberg Intelligence estimated a more generous two-month window. Central banks are cautious things by nature — they’re now girding for a longer war (or at least for more persistent fallout).

The policy response across the region has been largely coordinated in spirit, even if not in form. The central banks of the UAE, Qatar, and Kuwait all loosened liquidity rules and expanded access to central bank funding.

• Kuwait cut both its liquidity coverage ratio (LCR) and net stable funding ratio (NSFR) by 20 percentage points to 80% while also cutting regulatory liquidity ratio, moves that tell banks to lend more and hedge less;
• Qatar took a longer-term approach, cutting reserve requirements by one percentage point to 3.5% and replacing overnight repos with three-month term facilities to give banks a sustained liquidity runway;
• The UAE earlier gave banks permission to draw down cash reserves and introduced “loan-classification flexibility” that allows lenders to delay recognizing conflict-disrupted debt as non-performing.

SOUND SMART- The LCR is a Basel III liquidity threshold that sets minimum requirements for high-quality assets a bank needs to hold to weather 30 days of financial stress on its own. The NSFR, meanwhile, governs whether a bank’s longer-term lending is matched by equally durable funding sources. By focusing on these two ratios, Kuwait signaled its focus is less on the next 30 days and more on the next 12 months.

REMEMBER- Shareholders could face a 50% cut to their 2026 dividends as executives move to preserve an estimated USD 10 bn in capital, as we reported earlier this week.

Why it matters: While GCC banks entered the conflict with solid buffers, a prolonged standoff changes the calculus. Fitch warned last month that a conflict lasting beyond one month could have “serious effects” on financial metrics. As debt capital markets become more restrictive — with average liquidity scores for GCC USD sukuk already slipping — banks are being forced into more expensive domestic funding. That shift will show up in one of two ways this quarter: Compressed net interest margins or a sharp slowdown in loan growth. While neither would be catastrophic on its own, a simultaneous squeeze on both would be problematic for a region where credit expansion has been a primary growth engine.