Moody’s has warned that banks in the Gulf Cooperation Council could face a more challenging operating environment if the conflict involving Iran escalates further, potentially affecting asset quality and profitability.
In a recent report, the ratings agency said a prolonged conflict may also place pressure on banks’ capital buffers and could ultimately weigh on their credit ratings. However, under its baseline scenario, Moody’s expects only limited solvency pressure, allowing capital levels to remain broadly stable.
The agency noted that a sustained disruption to the region’s oil and gas exports would likely dampen business sentiment and slow activity in the non-oil economy, where GCC banks extend a significant portion of their lending. Sectors such as trade, transportation, real estate, construction, and tourism could be particularly affected.
Oil prices surged more than 25% on Monday, reaching their highest level since mid-2022. Brent crude was trading around $107.39 per barrel at 0800 GMT as the conflict disrupted global energy supply chains. Tanker movements through the Strait of Hormuz—a key shipping route for oil exporters including the United Arab Emirates, Saudi Arabia, Kuwait, Qatar, Iraq, and Iran—have also slowed.
If the disruption to energy trade continues beyond Moody’s baseline expectations, investor confidence could weaken and macroeconomic conditions could deteriorate, increasing risks for the banking sector.
Moody’s said the main transmission of these risks would be through operational and liquidity pressures. Although some online banking platforms have experienced temporary outages due to damage to facilities, banks are continuing to operate through established business continuity plans.
The agency added that liquidity risks could rise if the conflict drags on, particularly in banking systems that rely more heavily on less stable or external sources of funding, which could increase refinancing pressures.
Historically, however, GCC banks have been largely funded by stable customer deposits, which account for roughly three-quarters of their non-equity liabilities. Deposits from local governments and public-sector entities are also significant and have proven reliable even during past crises, including the 2015 oil downturn and the COVID-19 pandemic.
According to Moody’s, banks in the region also maintain strong liquidity buffers, with core banking liquidity typically ranging between 13% and 23% of tangible banking assets. These buffers mainly consist of cash, cash equivalents, and highly rated government securities issued by their respective sovereigns.
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