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GCC Banks Can Handle Possible Risks from a Growing Trade War: S&P Global
Banks in the Gulf Cooperation Council (GCC) are in a good position to handle growing global trade problems caused by high US tariffs. This is because they have strong cash reserves, good profits, and solid financial strength, according to a report.
Low Investment Portfolio
A report by S&P Global on Wednesday said that the biggest risks right now come from unstable markets and cautious investors. But bank investment portfolios usually make up only 20%–25% of their total assets.
Most of these investments are in safe, high-quality bonds, with only a small amount in riskier assets. So, the report expects that market changes won’t have a big impact on banks.
Also, banks are not likely to lose money unless they are forced to sell investments quickly due to money leaving the bank — but this is not expected to happen.
Some banks that work more in advising on debt or capital markets might see lower income because of the current market situation. Still, these services usually don’t make up a large part of banks’ total income.
Some banks in the Gulf Cooperation Council (GCC) region depend more on the capital markets or private equity investments, so they could face more risk. Lending based on the value of investments (called margin lending) is also a risk because investment values have gone down.
Before the trade war began, GCC banks had strong asset quality. As of the end of 2024, the average bad loan rate (non-performing loans or NPLs) for the top 45 banks in the region was 2.9%.
Banks had also saved more than enough money—over 150% of their bad loans—which gives them a safety cushion.
The report also said that GCC banks are still making good profits, with a return on assets of 1.7% at the end of the year. Their financial strength remains solid, with an average Tier 1 capital ratio of 17.2%.
However, because of market uncertainty, banks may see less money coming in. Some might even see money leaving.
Oil Price Trend
The report said that trade tensions have caused oil prices to drop. S&P Global now expects oil to stay around $65 per barrel for the rest of 2025. This could hurt government spending and slow down the region’s economic growth. If oil prices fall further, both oil and non-oil parts of the economy could grow more slowly, which might affect banks’ loan quality.
Federal Reserve Policy
S&P Global expects the U.S. Federal Reserve to cut interest rates slightly—by only 0.25% this year. Central banks in the GCC are likely to do the same. This small rate cut should help GCC banks stay profitable, the report said.
Published: 18th April 2025
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