The Gulf banking sector experienced the initial impacts of geopolitical developments in the region, as the quarterly growth of total loans at banks listed on regional stock exchanges slowed to its lowest level since the first quarter of 2024. This comes amid continued regional geopolitical factors affecting credit market dynamics, leading banks to adopt a more cautious approach to lending. In contrast, on the spending side, project award activities in the region remained resilient, reaching $76.1 billion in the first quarter of 2026, compared to $53.2 billion in the previous quarter. Economic activity in the region saw a sharp slowdown in March 2026 due to the war, as evident from Purchasing Managers' Index (PMI) data, with Qatar, Saudi Arabia, and Kuwait slipping into contraction territory. However, non-oil sector activity showed a notable recovery, particularly in Saudi Arabia and the UAE, with PMI remaining in growth territory above 50 points, while Kuwait and Qatar recorded a less severe contraction during April and May 2026.

According to a report by Kamco Invest, total outstanding loans reached $2.53 trillion by the end of the quarter, recording growth of 2.2%, compared to 2.7% growth in the previous quarter. Net loan growth also slowed to its lowest in five quarters at 2.5%, reaching $2.44 trillion by the end of this quarter, compared to $2.38 trillion at the end of the fourth quarter of 2025. On a country-by-country basis, total loans increased in all Gulf countries except Kuwait, where they declined by 1.1% quarter-on-quarter in the first quarter of 2026, while Oman and the UAE saw strong quarter-on-quarter growth in the mid-single-digit range.

In terms of total profit, the banking sector's total revenue reached a new record high of $35.3 billion during the quarter, but the growth rate was the lowest in four quarters at 0.9%. The slowdown was driven by a decline in reported revenues from banks in Kuwait, Saudi Arabia, and Bahrain, which almost completely offset the increase in revenues from banks in other Gulf countries. Listed banks in the UAE recorded the largest increase in revenue, with quarter-on-quarter growth of 4.7%, followed by listed banks in Qatar with revenue growth of 2.3%.

The sector's net profit recovered in the first quarter of 2026 after the decline recorded in the previous quarter. Total net profit reached $16.8 billion during the quarter, registering growth of 4.6% quarter-on-quarter and 5.0% year-on-year.

Financial data analysis

This report includes analysis of financial data announced by 55 banks listed on Gulf stock exchanges for the first quarter of 2026. The report compiles individual bank data at the country level. The global interest rate environment has entered a highly complex and deeply divergent phase, clearly moving away from the coordinated monetary easing expectations that markets had hoped for at the beginning of the year before the outbreak of the Middle East war. Central banks in advanced economies find themselves facing a structural reality of higher interest rates for longer, as the Middle East war and the resulting surge in energy prices have pushed inflation higher in major economies, forcing central banks in advanced markets to abandon monetary easing cycles or even reverse course. At the same time, a deep divergence has emerged between Western central banks, which remain on high alert against persistent price pressures, and Asian monetary authorities, who are dealing with a completely different set of domestic growth challenges and deflationary pressures.

In the United States, the Federal Reserve's June 2026 meeting revealed a clear shift towards more hawkish monetary policy guidance, as it held the federal funds rate unchanged at 3.50% to 3.75% for the fourth consecutive time, in its first meeting chaired by Kevin Warsh as Fed Chair. While markets widely expected the rate hold, the notable shift in the Fed's dot plot revealed that several officials were actually leaning towards further tightening. Against the backdrop of a possible rebound in core PCE inflation to 3.4% in May 2026, the Fed under its new leadership signaled that a reduction in the cost of capital is effectively off the table for the foreseeable future. As for year-end expectations, global interest rate outlooks indicate continued divergence and a significant reduction in room for monetary easing, with advanced economies leaning towards tightening or holding rates steady. The US Federal Reserve is widely expected to maintain a hawkish wait-and-see approach, with market expectations capped at a possible single 25-basis-point cut by late autumn, effectively pushing any major easing cycle well into next year. In Europe, the European Central Bank's path remains tied to volatile geopolitical risk premiums; if energy prices do not decline, further gradual rate hikes cannot be ruled out, keeping eurozone interest rates stable at their current restrictive levels. The ECB is expected to raise rates at least once more, with markets pricing in around a 50% probability of another hike in September. In contrast, China is likely to keep interest rates at record lows, with diminishing impetus for cuts amid rising inflation, although policymakers retain a supportive bias if growth weakens further. The key risk to all these paths remains the persistence of the energy shock; a sustainable de-escalation and a decline in oil prices could quickly curb the hawkish tilt, while renewed conflict would reinforce it.

Credit growth