• The cost-to-income ratio improved to 32.0%, benefiting from operational optimization and digital transformation
  • Asset quality strengthened, with non-performing loans declining to 2.4%

Dubai, UAE: According to the EY GCC Banking Sector Outlook H1 2025, banks across the region maintained a strong performance in the first half of the year, with sustained profitability, asset quality, and capitalization all improving. The sector continues to demonstrate resilience even as monetary policy easing and tighter liquidity begin to impact margins.

Macroeconomic stability underpins sector performance

The GCC economy is forecast to grow by 3% in 2025, rising further to 4.1% in 2026, supported by infrastructure investments, diversification initiatives and private sector dynamism. Oil GDP is expected to recover modestly by 1.7% in 2025 before accelerating to 5.4% in 2026, while non-oil sectors drive growth through ongoing reforms and foreign investment. These conditions provide a supportive backdrop for banking activity across the region.

Mayur Pau, EY MENA Financial Services Leader, said:

“The first half of 2025 demonstrates the resilience of the GCC banking sector. With solid capital buffers, healthier balance sheets and improved efficiency, banks are well-positioned to navigate near-term pressures and pursue long-term opportunities. As digital adoption, sustainability and regulatory readiness advance, the sector will continue to play a central role in supporting the region’s economic transformation.”

Stronger fundamentals in H1 2025

The GCC banking industry’s average return on equity stood at 13.2%, reflecting higher noninterest income and stronger cost efficiency. The cost-to-income ratio improved to 32.0%, indicating sustained benefits from operational optimization and digital transformation.

Asset quality strengthened, with non-performing loans declining to 2.4% from 2.8% a year earlier, while coverage ratios remained above 140%. Capitalization remained a core strength with an average Tier 1 ratio of 17.5% and a capital adequacy ratio of 18.9%, reinforcing the sector’s capacity to absorb external shocks.

Liquidity and margins under pressure

Despite strong fundamentals, GCC banks are adjusting to a changing environment. Net interest margins eased to 2.6%, compared to 2.8% in H1 2024, reflecting the impact of rate cuts across the region, with further compression expected following September 2025 reductions. Liquidity conditions also tightened, with the loan-to-deposit ratio rising to 94.1%, up from 90.7% in the previous year. These factors highlight the importance of efficiency gains, funding diversification, and revenue expansion beyond interest income.

Mayur adds:
“Bank profitability remains intact, underpinned by rising non-interest income and stable asset quality. Credit growth remains solid, particularly in the Kingdom of Saudi Arabia and the United Arab Emirates, where transformation agendas continue to drive lending activity. However, net interest margins are under pressure following rate reductions implemented in late 2024, which triggered loan repricing at lower yields. This trend is expected to persist with further rate cuts announced in September 2025. However, banks are actively diversifying revenue streams and enhancing operational efficiency to sustain profitability.”

Transformational shifts shape the outlook

The report notes that banks continue to adapt by embedding sustainability, accelerating digital transformation, and preparing for evolving regulatory requirements. Adoption of AI-driven banking, enhanced customer-facing digital solutions, and alignment with frameworks such as Basel III and Anti-Money-Laundering and Countering the Financing of Terrorism (AML/CFT) remain priorities. These initiatives are reshaping business models and positioning the sector for long-term competitiveness.

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