GCC banking sector outlook: H1 2025

The GCC banking sector outlook report offers an in-depth analysis of the GCC banking industry, examining the competitive environment and comparing annual financial KPIs of the top 20 banks.

The GCC banking sector enters 2025 on a solid footing, demonstrating resilience amid global economic uncertainty and regulatory evolution. Supported by stable macroeconomic conditions, including robust capital buffers and healthy liquidity, the sector is poised for growth.

The International Monetary Fund (IMF) projects regional GDP growth of 3% in 2025 and 4.1% in 2026. This growth is driven by large-scale infrastructure investments and private sector dynamism. Bank profitability remains strong, underpinned by rising noninterest income and stable asset quality. Despite recent rate cuts, banks can adapt through diversified revenue streams and effective risk management.

Crude oil prices continue to fluctuate, driven by oversupply and sluggish demand, with projected oil GDP growth of 1.7% in 2025. This is expected to accelerate to 5.4% in 2026. Non-oil GDP growth remains resilient, particularly in the UAE, which is projected to lead with 4.6%. The anticipated uptick in oil GDP is likely to stimulate credit expansion. Meanwhile, the acceleration of non-oil private sector activity, supported by infrastructure investments and strong foreign direct investment (FDI), is set to unlock new growth avenues for the region’s banking sector. Although the GCC has limited direct exposure to trade tariffs, it is expected to face economic headwinds due to ongoing global uncertainties and trade disruptions.

GCC banks are expected to maintain their resilience, bolstered by ongoing economic diversification and regulatory enhancements. However, rate cuts may exert pressure on net interest margins, prompting banks to diversify their revenue streams. Saudi banks reported robust credit demand, with year-on-year loan growth of 15.8%, while UAE banks demonstrated strong lending growth of 10.4%. The Federal Reserve maintained interest rates in the first half of 2025 but announced a 25-basis point cut in September 2025, reflecting emerging softness in the US labor market. This reduction may impact banks with significant retail lending exposure, as their assets tend to reprice faster than liabilities, potentially compressing margins. In response, banks are exploring income diversification strategies to mitigate these pressures.

Key transformations in the sector include the evolving FinTech ecosystem, the integration of sustainability into core strategies, and the adoption of digital banking innovations. GCC banks are focusing on income diversification and maintaining operational efficiency amid changing market conditions.

Overall, the GCC banking sector is well-positioned for sustained growth and resilience as it navigates the complexities of a changing economic landscape. With strong capital buffers, ongoing diversification efforts, and a commitment to innovation, banks are equipped to capitalize on emerging opportunities while effectively managing potential risks. As the region continues to evolve, the banking sector's adaptability and strategic focus will be crucial in fostering economic stability and driving future prosperity.