GCC Banks Face Limited Tariff Impact, Oil Prices Remain Key Risk
Tariffs Pose Minimal Direct Threat
GCC banks face limited direct impact from recent US trade tariffs, according to Fitch Ratings.
Hydrocarbon exports, exempt from tariffs, dominate GCC exports to the US. Non-oil exports face tariffs but represent a small share of GCC trade. Aluminium and steel face 25% tariffs, but volumes remain relatively low.
Indirect Risks Could Pressure Credit Conditions
GCC banks may feel indirect pressure from weaker corporate profitability and rising operating costs.
Higher inflation and debt costs could impact sectors tied to global supply chains. Corporates may delay investments, reducing loan demand and increasing credit risks.
Oil Prices Drive Economic and Banking Outlook
Lower oil prices remain the primary risk for GCC banks’ operating environments. Oil prices dropped below $60 after tariff announcements, recovering only after a temporary pause. Fitch sees oil prices driven by global growth and OPEC+ supply management.
Bahrain Most at Risk
Bahrain’s banking sector faces the highest risk of a downward operating environment revision. Weak public finances and high debt burden increase Bahrain’s vulnerability to oil price swings. Fitch currently rates Bahrain’s operating environment at B+ with a negative outlook.
Other GCC Countries Remain Stable
Bank operating environments in the UAE, Saudi Arabia, and Qatar remain stable. Oman holds a positive outlook, reflecting improving fundamentals and policy progress.
Strong Capital Buffers Support Stability
GCC banks hold strong capital positions, supported by robust earnings and high oil prices. Solid liquidity, favorable credit conditions, and stable demand help banks manage external shocks.
Government Spending Remains a Key Factor
GCC government spending strongly influences bank lending conditions across the region. Lower oil revenues may reduce non-oil activity and hurt loan growth forecasts for 2025.
Outlook Tied to Global Growth and OPEC+ Strategy
Global economic performance and OPEC+ policy will determine future oil prices. OPEC+ plans to unwind production cuts from April, affecting market balance.