Saudi Arabia: Gulf Cooperation Council banks face limited short-term credit risks from the regional conflict following US and Israeli strikes on Iran, supported by strong financial buffers and sovereign backing.

Analysts and rating agencies say the region’s banking system remains fundamentally resilient despite rising geopolitical tensions.

US and Israeli strikes on Iran on Feb. 28 have raised concerns about potential disruptions to energy markets, regional trade flows and broader financial stability across the Middle East.

“The banking system here in the GCC is resilient and it has been trusted by a lot of international and local businesses,” said Raed Al-Khedr, chief market analyst at fintech firm Equiti Group.

He added that the current situation stems from geopolitical tensions rather than financial or regulatory weaknesses in the region’s banking sector.

Al-Khedr warned that a broader escalation could have wider consequences for global markets.

“Don’t take it only from a geopolitical perspective; the consequences could affect not only the GCC banking system but the entire global financial system,” he said, noting that an extension of the conflict could lead to higher oil prices, stronger inflationary pressures and increased stress on financial markets.

A report released by Fitch Ratings said GCC bank ratings are largely anchored by expectations of sovereign backing, adding that most regional governments have sufficient fiscal headroom and sizeable asset buffers to withstand a short-lived conflict and any temporary disruption to hydrocarbon revenues.

“Our rated GCC banks generally have sound financial metrics, and ample liquidity and capital buffers. These are likely to contain any risks to credit profiles if the conflict lasts under a month, as we expect,” the report said.

It noted that GCC banks’ capital ratios are generally solid, having benefitted in recent years from strong internal capital generation and now more stringent regional prudential regulation.

However, the agency cautioned that sustained damage to critical energy infrastructure or a prolonged conflict could pressure ratings across the region.

It added that uncertainty surrounding the long-term stability and direction of Iran’s government — and its implications for regional security — could ultimately result in either negative or positive sovereign rating outcomes.

Fitch also highlighted that geopolitical tensions have historically been a key credit factor for GCC issuers, including banks, though the scale and regional reach of the current attacks are without precedent.

The agency said it will be important to monitor operating conditions, particularly non-oil economic growth and overall confidence levels, as these remain critical to banks’ credit strength.

This aligns with projections from S&P Global Ratings in November that stated banks across the GCC are expected to maintain stable credit fundamentals despite ongoing geopolitical and economic risks.

S&P added that the sector’s outlook is supported by broadly steady profitability, solid capitalization and resilient asset quality.

However, Fitch warned that GCC banks’ financial metrics could face more serious pressure if the conflict causes longer-term reputational damage to parts of the region that have positioned themselves as havens for international businesses and individuals.

“Governments’ post-conflict fiscal responses will also be important. Bank loan growth could be faster than we expect if public spending accelerates to shore up growth prospects,” the agency concluded.