Can Gulf Banks Withstand Trade Tensions and Market Volatility?

S&P Global Ratings has projected that banks in the Gulf Cooperation Council (GCC) countries possess strong financial resilience, enabling them to manage the growing risks of global trade tensions and economic uncertainty.

In a report released on Wednesday, the agency stated that Gulf banks are well-positioned to withstand potential market volatility, with the ability to navigate challenges such as reduced investor risk appetite and fluctuating asset prices.

However, S&P cautioned that a sharp drop in oil prices could negatively impact government spending and the broader economic outlook in the region, potentially leading to a rise in non-performing loans. The report emphasized that such a scenario would likely affect bank profitability more than financial soundness.

The agency also addressed recent U.S. trade policy developments, noting that tariffs announced by former President Donald Trump on April 2, which apply to goods from most countries, are unlikely to significantly impact Gulf economies, given that most Gulf exports to the U.S. are oil and gas-related and remain exempt from tariffs.

Additionally, Fitch Ratings predicted that the direct impact of U.S. tariffs on GCC banks will be limited, highlighting that oil prices remain the most significant factor influencing the performance of the region’s banking sector.