GCC banking sector remains resilient with strong H1 2025 performance and

Banks across the region maintained a strong performance in the first half of the year, with sustained profitability, asset quality, and capitalization all improving, according to the EY GCC Banking Sector Outlook H1 2025. The sector continues to demonstrate resilience even as monetary policy easing and tighter liquidity begin to impact margins.

The GCC economy is forecast to grow by 3 percent in 2025, rising further to 4.1 percent in 2026, supported by infrastructure investments, diversification initiatives, and private sector dynamism. Oil GDP is expected to recover modestly by 1.7 percent in 2025 before accelerating to 5.4 percent in 2026, while non-oil sectors drive growth through ongoing reforms and increased foreign investment. This economic diversification reduces reliance on hydrocarbons and creates a robust environment for banking sector expansion through corporate lending and project finance linked to major infrastructure and visionary projects such as NEOM and expanded transport networks. Geopolitical stability and enhanced trade relations continue to foster confidence and foreign capital inflows to the region’s banks.

Mayur Pau, EY MENA Financial Services leader, said: “The first half of 2025 demonstrates the resilience of the GCC banking sector. With solid capital buffers, healthier balance sheets and improved efficiency, banks are well-positioned to navigate near-term pressures and pursue long-term opportunities. As digital adoption, sustainability and regulatory readiness advance, the sector will continue to play a central role in supporting the region’s economic transformation.”

Stronger fundamentals in H1 2025

The GCC banking industry’s average return on equity stood at 13.2 percent, reflecting higher noninterest income and stronger cost efficiency. The cost-to-income ratio improved to 32.0 percent, supported by operational optimization and rapid digital transformation. Asset quality strengthened, with non-performing loans declining to 2.4 percent from 2.8 percent a year earlier, while coverage ratios remained above 140 percent. Capitalization remained robust with an average Tier 1 ratio of 17.5 percent and a capital adequacy ratio of 18.9 percent, reinforcing the sector’s capacity to absorb external shocks.

Read more: GCC banks positioned to weather economic storms from U.S. trade policies: Report

Liquidity and margins under pressure

Despite strong fundamentals, GCC banks are adjusting to changing market conditions. Net interest margins eased to 2.6 percent, down from 2.8 percent in H1 2024, reflecting the impact of regional rate cuts, with further compression expected post-September 2025. Liquidity tightened as the loan-to-deposit ratio rose to 94.1 percent, up from 90.7 percent. This environment underscores the urgency for banks to diversify funding sources, maximize operational efficiencies, and expand revenue streams beyond traditional…