Gulf Cooperation Council (GCC) banks are well-equipped to handle the fallout from escalating global trade tensions, particularly those arising from U.S. policies, a new report revealed.
According to S&P Global Ratings, despite having low direct exports to the U.S., GCC countries could face significant indirect impacts as trade tensions intensify. The agency highlights that market volatility and rising investor risk aversion are among the most pressing threats, yet banks within the region are positioned to manage these pressures effectively due to their strong liquidity, profitability, and capitalization.
Conservative asset management strategies
The credit agency emphasizes in its latest report that GCC banks typically allocate twenty to twenty-five percent of their total assets to investment portfolios, predominantly in high-quality fixed-income instruments. This conservative asset management strategy helps mitigate potential losses from capital market fluctuations, making severe financial setbacks unlikely unless banks are forced to liquidate assets to manage capital outflows. In light of current market volatility, S&P conducted hypothetical stress scenarios that suggest most GCC banking systems can cope with significant withdrawals from nonresident deposits, although Qatari banks may be more vulnerable due to their higher net external debt.
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Sensitivity to oil price fluctuations
S&P also points to the sensitivity of GCC banks to oil price fluctuations, having revised their oil price assumption to $65 per barrel for the remainder of 2025. A significant decline in oil prices could adversely impact government spending and economic sentiment, potentially leading to an increase in nonperforming loans (NPLs). While the average NPL ratio for GCC banks stood at 2.9 percent before the recent economic turmoil, banks had set aside provisions exceeding one hundred fifty percent of their NPLs, providing a cushion against further shocks.
Role of regulators in economic stability
Moreover, the report underscores the critical role of regulators, who previously implemented supportive measures during crises like the COVID-19 pandemic. Similar actions may be anticipated if the impacts of trade tensions on GCC economies surpass current expectations. Even in worst-case scenarios, with projected increases in NPLs, cumulative losses for banks are expected to remain manageable compared to past profitability levels. This resilience indicates that GCC banks are likely to maintain their solvency, even amid challenging economic conditions, as they navigate the complexities of an evolving global landscape, the report further explained.
