The Gulf Cooperation Council (GCC) banking system faces little immediate credit risk from the regional conflict following the attacks launched by Israel and the United States against Iran on February 28, Fitch Ratings said.
Bank ratings in GCC countries are primarily determined by expectations of sovereign support. Fitch believes that GCC sovereign ratings generally have sufficient headroom to withstand short-term regional conflicts and prevent further escalation. This often includes significant assets that cushion against short-term disruptions to hydrocarbon revenues. However, it said permanent damage to key energy infrastructure or prolonged hostilities could pose risks to these ratings.
The long-term direction and stability of the Iranian government, and the associated implications for regional security, are uncertain and could have a negative or positive impact on the sovereign rating.
The top rating agency said: “The GCC banks we rate generally have sound financial metrics and adequate liquidity and capital buffers. If the disputes last less than a month, as we expect, these likely contain risks to their credit profiles. However, there is further uncertainty about the long-term impact of the disputes, which could impact ratings.”
Although the geographic scope and scale of the ongoing attacks are unprecedented, geopolitical risk has long been a key credit consideration for GCC issuers, including banks. Fitch believes the key areas to watch are the strength of operating conditions, particularly non-oil growth and overall confidence in the region, as these are important to the bank’s credit profile.
This attack increases the risk to pre-conflict norms in 2026. This assumed that regional conditions remained strong and growth prospects for the non-oil sector were strengthened by a strong pipeline of projects designed to support diversification.
Short-term impacts on oil and gas activity are likely to be due to the conflict, particularly in areas where facilities are temporarily closed and for Bahrain, Kuwait and Qatar, which do not have supply routes that bypass the Strait of Hormuz. Non-oil activities will also be affected, with flights suspended in many regions, consumption activity slowing and risk perception likely to linger in tourism.
However, under the current criteria that conflicts are fairly short-lived and energy export infrastructure is not seriously damaged, the impact on GCC economic growth will be temporary. This suggests a limited impact on bank loan growth, asset quality performance and profitability. Although the indicator may be slightly weaker than previously expected, it said it believed this was unlikely to impact the standalone viability ratings of the banks it rated.
Bank capital ratios in the GCC countries have generally been strong in recent years, benefiting from strong internal capital generation and now more stringent regional prudential regulations. It added that funding and liquidity are the strength of bank ratings in most of the GCC, with the exception of Qatar and, to a lesser extent, Saudi Arabia. -TradeArabia News Service
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