The banking sector in Gulf countries during the Iran war showed stronger resilience than BMI's expectations, after the main risks that the company, a subsidiary of Fitch Solutions, had warned about earlier – namely the possibility of capital flight and liquidity pressures – did not systematically materialize.

The company said in a report titled 'Main Outlook for the Banking Sector in the Middle East and North Africa' published on June 30 and reported by Asharq Bloomberg, that deposit growth slowed during the peak of the conflict, but no evidence of a broad deposit flight from Gulf banking systems was observed.

Public sector flows and sovereign support, through liquidity packages, borrower protection, and capital support, helped stabilize funding conditions, making the banking sector's resilience stronger than expected, according to the report.

Risks have become more concentrated

However, this improvement does not mean the disappearance of risks. Instead of risks being linked to the liquidity of the banking system as a whole, they 'have become more concentrated in confidence-sensitive funding sources, such as private sector and non-resident deposits, which have shown signs of slowing in several Gulf markets.'

The company warned that any renewed deterioration in sentiment could lead to further capital outflows, particularly in banking systems more reliant on foreign funding, such as Bahrain and Qatar.

Despite the decline in near-term downside risks after the preliminary agreement between the US and Iran in mid-June and the reopening of the Strait of Hormuz, the company indicated that the environment remains 'fragile,' prolonging caution in the markets.

Loan growth slowdown in 2026

The company expected loan growth in Gulf countries to slow in 2026, albeit from strong levels, due to a slowdown in non-oil activity, delayed investment decisions, and tighter lending standards.

It added that the slowdown in loan growth 'is increasingly taking on a structural character in some markets, such as Saudi Arabia, rather than being linked solely to the war.'

In contrast, the company noted that the sector in the UAE continues to outperform, supported by relatively strong credit demand and economic diversification, while Bahrain and Qatar remain more sensitive to funding structure and external conditions.