Geopolitical instability and conflict in the Middle East are expected to decelerate growth for banks across the Gulf Cooperation Council (GCC), according to S&P Global. Despite these headwinds, GCC banking institutions are projected to maintain stable funding profiles, preserve robust capital buffers, and generate solid earnings, noted S&P Global Ratings analyst Tatjana Lescova.
Total domestic deposits in the GCC region expanded by roughly 4.2% during the first quarter of 2026, with year-to-date growth accelerating to 6.2% by the end of April. This influx of deposits effectively countered a drop in interbank funding among the region’s 50 largest lenders. Driven by a significant increase in Saudi Arabia, domestic private-sector deposit growth matched 2025 levels, reaching an annualized rate of 11.6% by late April 2026. Concurrently, government and public sector deposits surged to an annualized rate of about 36%—primarily led by the UAE and Kuwait—which balanced out slowing private-sector deposit growth in those specific nations.
S&P noted that external funding remained secure without any major outflows. While anecdotal reports indicated that some depositors briefly transferred capital out of the region when the conflict with Iran began, these funds returned within weeks, demonstrating investor confidence that the disruptions would be temporary. Furthermore, the rating agency highlighted that the stable credit profiles of GCC sovereigns are reinforced by significant fiscal buffers and an anticipated hydrocarbon-led economic rebound in 2027.
However, S&P warned that prolonged geopolitical tension could pressure public finances, disrupt confidence-dependent investment and consumer spending, and reveal variations in how well different sovereigns can fiscally absorb extended disruptions. S&P Global Ratings analyst Sapna Jagtiani pointed out that the ongoing conflict will likely hit tourism, transport, logistics, consumer spending, and energy sectors the hardest. For corporate entities, Jagtiani anticipates compressed profitability throughout 2026 due to climbing logistics costs, scaled-back discretionary capital expenditures, and reduced activity in capital market debt issuance.
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