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While regional tensions are driving higher volatility and risk premiums, the banking sector in the GCC remains fundamentally sound, with Saudi and UAE institutions still offering upside even under adverse scenarios, according to CI Capital.
A 1pp rise in discount rates would cut target prices by only 5-9% across major GCC markets, CI Capital said in a report. Analysts expect a “flight to quality,” favouring large, well-capitalised banks with strong deposit bases.
The top picks in Saudi Arabia include SBN, SABB, and Al Rajhi Bank, while in the UAE, ADCB and Emirates NBD are preferred due to resilient balance sheets and market positioning.
Net interest margins (NIM) for GCC banks could get a short-term boost because interest rate cuts are taking longer than expected, keeping lending yields higher for now. But that upside is partly cancelled out by still-high funding costs and slower loan growth.
The report recommends steering clear of Kuwaiti banks due to the country’s high reliance on the Strait of Hormuz for transiting its oil exports – a major source of state revenue.
Looking ahead, earnings across GCC banks are expected to remain broadly stable in Q1 2026, led by Saudi lenders.
Geopolitical tensions, however, are beginning to weigh on the outlook. A potential three-month disruption linked to regional conflict could lead to an average contraction of around 7% in oil GDP, with Kuwait and Qatar most exposed.
(Writing by Ahmad Mousa; editing by Seban Scaria)
