Fitch Ratings-London: Gulf Cooperation Council (GCC) banking systems face few immediate credit risks from the regional conflict that has followed attacks launched by Israel and the US on Iran on 28 February, says Fitch Ratings.

Bank ratings in the GCC are mostly driven by our expectations of sovereign support. Fitch believes GCC sovereign ratings generally have sufficient headroom to withstand a short regional conflict that does not escalate significantly further, including in most cases substantial assets that provide a buffer against short-term hydrocarbon revenue disruption. However, lasting damage to key energy infrastructure or protracted hostilities could pose risks to these ratings. The longer-term orientation and stability of Iran’s government, and the associated implications for regional security, are unclear and could have negative or positive sovereign rating implications.

Our rated GCC banks generally have sound financial metrics, and ample liquidity and capital buffers. These are likely to contain any risks to credit profiles if the conflict lasts under a month, as we expect. However, there is more uncertainty around the conflict’s longer-term effects, which could have rating repercussions.

Geopolitical risk has long been an important credit consideration for GCC issuers, including banks, although the regional breadth and scale of the ongoing attacks is unprecedented. Fitch believes a key area to watch will be the strength of operating conditions, particularly non-oil growth and general confidence in the region, as these are important for banks’ credit profiles.

The attacks raise risks to our pre-conflict baseline for 2026. This had assumed that regional conditions would remain solid, with non-oil sector growth prospects being bolstered by a robust pipeline of projects designed to support diversification. Some near-term effects on oil and gas activity are likely from the conflict, particularly where facilities are temporarily closed and for Bahrain, Kuwait and Qatar, which lack supply routes to bypass the Strait of Hormuz. Non-oil activity will also be affected, as much regional air travel has been suspended, consumer activity is likely to have slowed, and risk perceptions could have a lingering impact on tourism.

However, under our current baseline in which the conflict remains fairly short and energy export infrastructure is not materially damaged, the effect on GCC economic growth would be temporary. This suggests that the impact on bank loan growth, asset-quality performance and profitability would be limited. Metrics may be marginally weaker than we had previously assumed, but we believe this is unlikely to affect any rated banks’ standalone Viability Ratings.

GCC banks’ capital ratios are generally solid, having benefitted in recent years from strong internal capital generation and now more stringent regional prudential regulation. Funding and liquidity are a rating strength for banks in most of the GCC, except in Qatar and – to a lesser extent – in Saudi Arabia.

The conflict could make it more challenging for GCC-based entities to issue debt in overseas capital markets. This could particularly increase Saudi banks’ reliance on more expensive domestic markets, raising funding costs or leading to a slightly sharper slowing of loan growth than we had previously expected. However, the effect on Saudi banks’ credit profiles is not likely to be significant, given their solid capital and liquidity buffers.

There could be more serious effects on GCC banks’ financial metrics if the conflict causes longer-term reputational damage to parts of the region that have positioned themselves as havens for international businesses and individuals. An outflow of expatriates could put pressure on some GCC housing markets, affecting banks’ asset-quality performance, for example. Governments’ post-conflict fiscal responses will also be important. Bank loan growth could be faster than we expect if public spending accelerates to shore up growth prospects.

Matt Pearson
Associate Director, Corporate Communications
Fitch Group, 30 North Colonnade, London, E14 5GN
E: matthew.pearson@thefitchgroup.com