meed-logo

line1 line2 line3
SIGN IN / REGISTER

Gulf banks navigate turbulent times

25 July 2025

 

Much can change in a year, as GCC banks are finding out. They face a sharply different environment in mid-2025 than they did at the same point last year. In 2024, GCC banks’ immediate challenge was the downward shift in interest rates dictated by the US Federal Reserve, prompting a drop in interest income and forcing lenders to secure other forms of revenue.

This year, the political and economic disruption wrought across much of the world has changed the calculus for regional lenders.

While lower interest income remains an ongoing challenge, a broader mix of issues requires attention, including tighter liquidity, higher cost of funds and the need to continue supporting domestic diversification agendas. 

The good news for GCC banks is that, on the whole, the positives are outweighing the negatives.

According to Kamco Invest research, GCC banking sector bottom-line growth was steady in early 2025, with Q1 2025 witnessing expansion of 8.6% to reach $15.6bn, a record for that quarter.   

This increase came despite a decline in net interest income of 1.7% in year-on year terms, and was mainly led by higher non-interest income, lower operating expenses and a decline in impaired loans.   

Position of strength

Strongly performing Gulf economies over successive years have created favourable conditions for banks, offsetting the impact of lower interest rates. 

“Throughout this period of higher oil prices, GCC banks were building their capital buffers because profitability was good,” says Redmond Ramsdale, head of Middle East bank ratings at Fitch Ratings.

“Asset quality in most of these countries has been improving. So the banks are in quite a good position with the buffers they have built.”

Strongly performing Gulf economies over successive years have created favourable conditions for banks, offsetting the impact of lower interest rates

Despite the economic volatility seen in the first half of 2025, Gulf banks have proved resilient, even if President Donald Trump’s tariffs remain a challenge for US trading partners globally, including those in the Gulf. 

“Tariffs are likely to have limited direct impact on GCC banks. It’s more about what is the importance of tariffs on oil prices. Lower oil prices are negative for the GCC because oil is still the main component of government revenues – and that’s what effectively translates into lending or financing growth for the banks,” says Ramsdale. 

Credit growth is holding up strongly, which in part reflects the resilience of economic diversification programmes in the GCC. 

Demand for credit is also holding up, as is government spending – typically a key determinant of economic confidence, and a driver for non-oil GDP.

The consensus among analysts is that credit growth will remain in the high single-digits for the GCC as a whole, and will be still higher in Saudi Arabia. 

“In Saudi Arabia we forecast that the loan growth will remain strong this year, and will be driven more by corporate lending as projects around Vision 2030 are being implemented — less so by mortgages,” says Mohamed Damak, senior director, financial services at S&P Global. 

According to Damak, mortgages will continue to grow because there is still demand. “But the big story for Saudi banks is the recourse to external funding,” he says. 

“They have been issuing debt on the international capital markets in order to mobilise liquidity to be able to continue to finance their growth, because deposit growth is not sufficient to finance all lending growth.”

This is the backdrop to the extensive issuance being seen in the kingdom and other Gulf markets. Saudi National Bank (SNB) completed the issuance of $1.25bn in Tier 2 US dollar capital notes in June, with order books exceeding $4bn. 

It is not just Saudi banks that are in issuance mode. GCC banks have about $2.2bn in US dollar-denominated Additional Tier 1 (AT1) instruments with first call dates due in 2025, and a further $3.1bn in 2026, according to Fitch Ratings. This comes off a strong year for Gulf bank debt issuance in 2024, when $42bn of issuance was seen – the previous record was in 2020 with about $26bn. 

First-half 2025 issuance stands at $38bn, suggesting this year is going to set a new record. Maturities valued at $16bn are due in 2026, with $13bn due in 2027, a further driver for banks to tap the debt capital market. 

At least three Saudi lenders have issued AT1 dollar-denominated capital Islamic bonds (sukuk) this year as they have moved to take advantage of tighter spreads and strong investor demand. 

Saudi banks – in line with previous years – are driving loan growth, with UAE lenders not far behind. 

“Our forecast for credit growth in Saudi Arabia for this year is between 10% and 12%, which is still very strong growth, and the highest in the region. That is driving quite strong profitability, despite the fact that they are funding this growth with more expensive funding,” says Ramsdale.

The kingdom’s current and savings account deposits are not growing at anywhere near the pace that loans or financing is growing, notes Fitch, so banks are filling that with term deposits or external liabilities.

The higher reliance on foreign funding has led to tighter liquidity. “Loan growth is exceeding deposit growth, so banks need to issue,” says Ramsdale.

Another reason for issuance is the need for dollars, which are being used to fund major government projects, notably in Saudi Arabia, where about 40% of the GCC bank issuance is located.

Shrinking liquidity

The prospect of tightening liquidity, as deposits prove trickier to attract, is not a cause for undue concern. There are ample tools at the central bank’s disposal to manage the situation.

“The Saudi Arabian Monetary Agency still has a lot of [deposits from government-related entities] sitting in its accounts that can be deployed into the banking sector. If liquidity gets too tight, it can do so,” says Ramsdale.

Stress-testing exercises appear to bear this out. According to S&P Global, all GCC banking systems have enough liquidity to sustain funding outflows, with the exception of Qatar, where there is a shortfall of $9bn under its hypothetical stress scenario. This is due to the fact that Qatar starts with a higher external debt compared to all other  regional countries. 

This $9bn is something the authorities can easily absorb, however, as demonstrated by the strong track record of support. 

S&P stress tested the banking systems on three metrics – the outflow of external debt, the potential outflows of local private sector deposits and the implication on the economy and on the asset quality indicators.

The ratings agency looked at the top 45 regional banks. Under the first scenario, the outflow of external debt, 16 of the banks would show losses of around $5bn in cumulative terms, says Damak. 

For the second scenario, 26 out of the top 45 would be loss-making for a total amount of around $30bn. 

“But now, when you compare the $30bn to how much profit these banks have made over the last year – about $60bn – it means that they have the capacity to absorb the problem without any significant impact on capitalisation,” says Damak.

UAE banks’ massive debt external asset position makes them fairly resilient to potential stress-related external capital outflows, notes Damak.

Big banks dominate

At the individual level, the region’s large ‘national champion’ banks continue to dominate banking systems. Some of these institutions have posted impressive early-year performances.  

For example, Al-Rajhi Bank, the largest lender in the GCC by market capitalisation, reported a 34% year-on-year increase in net profit in Q1 2025. It is reaping the benefit of the kingdom’s surging credit demand. Booking healthy profits on the back of strong loan demand, from both corporate and consumer sectors, comes relatively easily in this context.  

However, where loan growth is weaker, banks’ earning performances have been commensurately negatively affected. 

Looking ahead, profitability is expected to be marginally down this year

For Qatar National Bank, which is considered the largest Qatari bank by assets, while Q1 net profit reached $1.2bn, this
was only up by a couple of percentage points compared to the same period last year, indicative of less robust credit growth in Qatar.  

“The largest banks in the GCC – the likes of SNB and Al-Rajhi in Saudi Arabia, First Abu Dhabi Bank and Emirates NBD in the UAE and National Bank of Kuwait and Kuwait Finance House in Kuwait – tend to have around 50%-60% of the total banking system, which gives them an advantage in terms of efficiency, delivery and market access,” says Ashraf Madani, a senior analyst at Moody’s Financial Institutions Group. 

“These banks are highly rated in terms of their standalone and overall deposit ratings and we expect their advantage to continue.” 

Looking ahead, profitability is expected to be marginally down this year, says Madani, reflecting some pressure on the net interest margins because of the lower rates since Q4 last year, and also the expectation that credit costs should normalise compared to the previous year.

One of the big plus-points for Gulf banks is the improvement in asset quality witnessed in the past year, suggesting that Gulf economies’ post-Covid recovery has helped reduce bad loans. 

“We’re seeing non-performing loans heading in the right direction, trending lower, and that’s basically because of the strong performance of borrowers, and the denominator effect, whereby an increase in the overall size of the loans will lower overall ratio,” says Madani.

Other factors supportive of loan quality are regulatory changes in the UAE, which has allowed UAE banks to write off some of the legacy problem loans, another factor that is likely to move the headline non-performing loan ratio down.

Given the political and economic turbulence witnessed in the first half of the year, Gulf bank chiefs will not be minded to make rash predictions about future conditions. Even so, the resilience on display, and the healthy loan appetite, will likely boost confidence that lenders in the region can withstand further headwinds. 

https://image.digitalinsightresearch.in/uploads/NewsArticle/14312013/main.gif
James Gavin

Register for MEED's guest program now to access this article.

Click here to register
Exclusive from Meed
Related Articles
  • Local firm executing Yasref tail gas treatment project

    14 April 2026

     

    Yanbu Aramco Sinopec Refining Company (Yasref) is overseeing progress on a key project to build a tail gas treatment unit (TGTU) at its crude refinery complex, located in Yanbu on the west coast of Saudi Arabia.

    Yasref is a joint venture in which Saudi Aramco owns the majority 62.5% stake and China Petroleum & Chemical Corporation (Sinopec) owns the other 37.5%. The Yasref refinery was commissioned in 2015 and has a crude oil refining capacity of 400,000 barrels a day (b/d).

    The aim of the project, which Yasref calls the tail gas synergy project, is to significantly reduce emissions of sulphur dioxide (SO₂) and hydrogen sulphide (H₂S) from its production complex. The 'synergy' comes from integrating primary treatment (such as the Claus process, which typically recovers about 95-97% of sulphur) with advanced secondary treatment in a TGTU, to achieve overall sulphur recovery of nearly 99.9%.

    Yasref awarded the main contract for the tail gas synergy project to Jeddah-based contractor Carlo Gavazzi Arabia earlier this year, according to information obtained by MEED Projects, with the contract estimated at $80m.

    The local branch of London-headquartered Berkeley Engineering Consultants is acting as the project’s main consultant, according to MEED Projects.

    The scope of work on Yasref’s tail gas synergy project includes the following:

    • Construction of downstream TGTU with catalytic hydrogenation reactor and amine absorber train
    • Modification of existing sulphur recovery units
    • Construction of acid gas removal units employing amine solvent systems
    • Construction of desulphurisation units including carbonyl sulphide hydrolysis
    • Construction of associated utilities and auxiliary infrastructure: thermal exchangers, power and steam supplies, flare knockout drums
    • Installation of safety and security systems hydrogen sulphide detection, overpressure relief, firewater deluge, access control, safety instrumented systems
    • Integration of emission monitoring and process control instrumentation.

    In April last year, Aramco, Sinopec and Yasref signed a venture framework agreement for a potential petrochemicals expansion of the Yasref refinery complex into a major integrated petrochemicals facility. The project would include a large-scale mixed-feed steam cracker with a capacity of 1.8 million tonnes a year (t/y) and a 1.5 million-t/y aromatics complex, along with associated downstream derivatives.

    MEED understands that the Yasref petrochemicals expansion project, which is also referred to as Yasref+, is part of Aramco’s $100bn liquids-to-chemicals programme.

    The central ambition of the strategic programme is to derive greater economic value from every barrel of crude produced in Saudi Arabia by converting 4 million b/d of Aramco’s oil production into high-value petrochemicals and chemicals feedstocks by 2030.

    ALSO READ: Saudi downstream projects market enters lean period
    https://image.digitalinsightresearch.in/uploads/NewsArticle/16383830/main3043.jpg
    Indrajit Sen
  • Kuwait sets April deadline for $718m drainage tender

    14 April 2026

    Kuwait’s Ministry of Public Works has set a 21 April deadline for a major tender estimated to be worth about KD222m ($718m).

    The tender scope covers the construction of rainwater drainage networks across the residential areas of Sabah Al-Ahmad, South Sabah Al-Ahmad, Al-Khairan and Al-Wafra.

    The Ministry of Public Works floated the tender on 22 March.

    According to regional projects tracker MEED Projects, the works include the construction of a major concrete sewer, three collection basins and extensive stormwater drainage basins.

    Rainwater collection tanks will be connected through an independent network, with outlets to the sea via the Nuwaiseeb exit to manage overflow.

    The infrastructure will also filter pollutants such as oils, minerals and sediments to protect water quality and support environmental sustainability.

    The project aims to reduce surface runoff, prevent street and urban flooding, and improve groundwater recharge.

    UK analytics firm GlobalData expects Kuwait’s construction industry to grow by 5.1% in 2026-29, supported by government investment in the oil and gas sector aimed at raising production, as well as investment in the infrastructure sector.

    In the short term, growth will be boosted by planned expenditure under the 2025-26 budget, which was approved in March 2025.

    The construction industry in Kuwait is expected to record an annual average growth rate of 4.9% in 2026-29, supported by investments in renewable energy, transport, and oil and gas projects.

    READ THE APRIL 2026 MEED BUSINESS REVIEW – click here to view PDF

    Economic shock threatens long-term outlook; Riyadh adjusts to fiscal and geopolitical risk; GCC contractor ranking reflects gigaprojects slowdown.

    Distributed to senior decision-makers in the region and around the world, the April 2026 edition of MEED Business Review includes:

    > GCC CONTRACTOR RANKING: Construction guard undergoes a shift
    To see previous issues of MEED Business Review, please click here
    https://image.digitalinsightresearch.in/uploads/NewsArticle/16383203/main.jpg
    Yasir Iqbal
  • Local firm makes hydrocarbon discovery in Oman’s Block 7

    14 April 2026

    Omani oil and gas exploration and production company Masar Petroleum has announced a discovery in the Hasirah Ridge in the sultanate’s Block 7.

    Masar Petroleum was the inaugural operator to appraise and produce hydrocarbons from the Hasirah reservoir in Block 7 in 2017.

    Building on that experience, Masar Petroleum has now successfully drilled a new exploration well south of its existing discoveries, validating the concept of the Hasirah Ridge — a geological trend 5 kilometres wide and 30km long mapped across Block 7 using 2D seismic data.

    This discovery represents the first step towards unlocking the Ridge’s prospective resource base of 100 million to 380 million barrels, Masar Petroleum said in a statement.

    Following this discovery, a planned 3D seismic survey and exploration and appraisal programme is expected to advance the development of the new resources by the end of 2028.

    First production from this field is expected to come on stream during the last quarter of this year.

    Masar Petroleum plans to rapidly advance appraisal and development opportunities across Block 7.

    “Masar is a proud Omani E&P company that has delivered significant value through a continuous and focused effort on unlocking our potential,” Abdulsattar AlMurshidi, CEO of Masar Petroleum, said.

    ALSO READ: Oman offers five hydrocarbon exploration blocks in new bidding round
    https://image.digitalinsightresearch.in/uploads/NewsArticle/16383075/main2121.jpg
    Indrajit Sen
  • Bidders get more time for Saudi water transmission projects

    14 April 2026

     

    Saudi Arabia’s Water Transmission Company (WTCO) has extended the bid submission deadlines for engineering, procurement and construction (EPC) contracts for two major independent water transmission system projects.

    The Jubail-Buraidah and Ras Mohaisen-Baha-Mecca transmission projects were first tendered last September under the public-private partnership model.

    The deadlines for qualified contractors to submit technical and financial bids had initially been extended to March. 

    The new bid submission deadline for the Jubail-Buraidah project is 30 April.

    Scheduled to begin construction in 2027, the scheme comprises an approximately 348-kilometre-long greenfield water transmission system with a capacity of 840,650 cubic metres a day (cm/d), delivering water from the Ashmasiah reservoirs to cities and towns in Al-Qassim province.

    The project is large by WTCO standards. The company’s second phase of the Khobar-Hofuf system, completed in 2024, was 140km in length, with a capacity exceeding 530,000 cm/d. 

    Ras Mohaisen-Baha-Mecca

    For the Ras Mohaisen-Baha-Mecca water transmission system project, the new bid submission deadline is 7 May.

    The project involves constructing an approximately 325km-long greenfield independent water transmission system with a capacity of 542,000 cm/d, delivering water from Ras Mohaisen to the Adham and Aradhiyah regions.

    Prequalification for both projects closed on 15 January.

    It is understood that local firms Alkhorayef Water & Power Technologies and Mutlaq Al-Ghowairi Contracting Company (MGC) are among those qualified to bid for the Ras Mohaisen contract.

    MGC secured the EPC contract for an even larger independent water transmission pipeline project in June last year.

    The project, also linking Jubail and Buraidah, spans 587km and carries 650,000 cm/d.

    According to regional project tracker MEED Projects, construction works recently commenced on the project, which is estimated to cost about SR8.5bn ($2.2bn).

    WTCO is also planning to tender a contract for phase two of the Ras Mohaisen water transmission system project. This includes laying water transmission pipelines 408km in length with a capacity of 400,000 cm/d. This project is estimated to cost around $600m.

    It is understood that the main contract tender will be issued in 2027.

    READ THE APRIL 2026 MEED BUSINESS REVIEW – click here to view PDF

    Economic shock threatens long-term outlook; Riyadh adjusts to fiscal and geopolitical risk; GCC contractor ranking reflects gigaprojects slowdown.

    Distributed to senior decision-makers in the region and around the world, the April 2026 edition of MEED Business Review includes:

    > GCC CONTRACTOR RANKING: Construction guard undergoes a shift
    To see previous issues of MEED Business Review, please click here
    https://image.digitalinsightresearch.in/uploads/NewsArticle/16383056/main.jpg
    Mark Dowdall
  • Saudi firm wins $64.2m steel pipe orders from Aramco

    14 April 2026

    Saudi Arabia-based Arabian Pipes Company has announced it has won orders from Saudi Aramco to supply steel pipes, totalling SR241m ($64.2m).

    Under the terms of the contracts, Arabian Pipes Company will supply steel pipes over contract durations of nine months and 11 months, commencing from the date of signing.

    “These contract awards reinforce Arabian Pipes Company’s strong position as a key supplier to the kingdom’s energy sector and highlight its continued commitment to supporting major oil and gas infrastructure projects in Saudi Arabia,” the company said in a filing with the Saudi Exchange (Tadawul), where its shares trade.

    The company added that the orders will contribute positively to its financial performance over the contract period.

    Arabian Pipes Company last secured a contract from Aramco in August 2024, when it won an eleven-month steel pipe supply order worth approximately $28.53m.

    Prior to that, in July 2024, the company won a contract worth SR293m ($78.1m) to supply steel pipes for the second expansion phase of Aramco’s Jafurah unconventional gas development. That contract had a duration of 10 months.

    The order was placed as a subcontract by Denys Arabia, the main contractor performing engineering, procurement and construction works on one of the Jafurah second expansion phase project packages.

    MEED’s April 2026 report on Saudi Arabia includes:

    > COMMENT: Risk accelerates Saudi spending shift
    > GVT &: ECONOMY: Riyadh navigates a changed landscape
    > BANKING: Testing times for Saudi banks
    > UPSTREAM: Offshore oil and gas projects to dominate Aramco capex in 2026
    > DOWNSTREAM: Saudi downstream projects market enters lean period
    > POWER: Wind power gathers pace in Saudi Arabia
    > WATER: Sharakat plan signals next phase of Saudi water expansion
    > CONSTRUCTION: Saudi construction enters a period of strategic readjustment
    > TRANSPORT: Rail expansion powers Saudi Arabia’s infrastructure push

    To see previous issues of MEED Business Review, please click here
    https://image.digitalinsightresearch.in/uploads/NewsArticle/16382513/main2830.jpg
    Indrajit Sen