Gulf Cooperation Council (GCC) banks are entering 2026 with stable credit fundamentals, robust capital buffers, and resilient profitability, according to a recent assessment by S&P Global Ratings. The agency highlights that 90% of bank ratings in the region carry a stable outlook, reflecting the Gulf’s solid economic foundation and conservative banking frameworks. However, geopolitical tensions and oil-price volatility remain significant risks. S&P analysts Mohamed Damak and Tatjana Lescova emphasize that the sector’s stability hinges on its ability to navigate these external challenges effectively. The agency’s base case assumes no major geopolitical disruptions or prolonged oil-price declines, but warns of potential downside scenarios, including regional conflicts or a sharp drop in oil prices due to global economic slowdowns. External funding needs are rising across the Gulf, with Bahrain and Qatar holding the highest levels of external debt. Saudi banks are expected to continue accessing international debt markets to support Vision 2030 projects. Despite these pressures, the region benefits from strong capital inflows, driven by high oil revenues and diversification efforts. S&P’s average long-term rating for GCC banks is A-, slightly higher than last year, reflecting improved operating conditions and government support. UAE banks, in particular, are expected to thrive due to rapid non-oil economic expansion, population growth, and robust credit demand. The UAE’s digital transformation has also enhanced retail lending efficiency. Economic activity across the Gulf is projected to strengthen, with Brent crude prices stabilizing at around $60 per barrel in 2026 and average real GDP growth estimated at 3.1%. The UAE is expected to outperform this average, supported by growth in tourism, real estate, trade, and technology. Asset quality has improved significantly, with non-performing loan ratios falling to 2.7% and loan-loss provision coverage rising to 155.6%. However, S&P cautions about latent risks, including untested credit exposures and potential defaults in Türkiye. Capitalization remains a key strength, with GCC banks reporting an average Tier-1 capital ratio of 17%. While hybrid instruments have increased, particularly in Saudi Arabia, the overall quality of capital remains solid. S&P concludes that UAE banks are well-capitalized and profitable but must remain vigilant to navigate potential turbulence.