GCC Banking Sector Set for Robust Growth in 2025 Amid Favorable Global Conditions
The banking sector in the Gulf Cooperation Council (GCC) is poised for significant growth in 2025, driven by economic diversification efforts and favorable global financial conditions. This projected growth is expected to be sustained by large-scale infrastructure projects, growing non-oil activity, and favorable monetary policies across the region.
According to a recent report by accounting firm Ernst & Young, the GCC economy is projected to expand at a rate of 3.5 percent in 2025. This projection is consistent with numerous other rating agencies, including S&P Global, which has stated that financial institutions in the GCC region are performing well and expect their strong performance to continue throughout the year.
Saudi Arabia and the United Arab Emirates (UAE), the two largest economies within the GCC, are expected to see non-oil growth exceed 3.4 percent in 2025. This growth is fueled by ongoing reforms and investments aimed at diversifying the economy and reducing dependence on oil exports.
Strong Capital Cushions and Healthy Asset Quality Indicators
The EY MENA Financial Services Leader, Mayur Pau, has stated that the GCC banking industry should remain strong due to considerable capital cushions, healthy asset quality indicators, and adequate profitability. This confidence is reflected in the report’s assessment of credit expansion across the region.
Saudi banks are witnessing steady credit expansion, driven by Vision 2030 projects and a surge in private sector lending. The country’s planned megaprojects will play a role in creating enormous business and lending opportunities for banks this year. Additionally, Saudi Arabia’s economic diversification strategies are providing long-term stability, with lending growth expected to remain robust throughout 2025.
In the UAE, the banking sector is experiencing sustained growth in lending activities, aided by relaxed monetary policies and strong corporate and retail deposit inflows. Asset quality will remain strong, as banks capitalize on high profits to provision for legacy loans.
Qatar, Oman, Bahrain, and Kuwait: Banking Sector Growth
Banks in Qatar remain well-capitalized, with strong Tier 1 and capital adequacy ratios exceeding regulatory thresholds. The ongoing expansion of Qatar’s liquefied natural gas sector is expected to generate fresh credit opportunities.
In Oman, banking sector growth aligns with the country’s Vision 2040 diversification initiatives, which are boosting lending activity. Bahrain’s financial industry is benefiting from an uptick in private-sector investments and the completion of refinery upgrades.
Kuwait’s banking sector maintains stability, backed by high foreign assets, accounting for 30.4 percent of total local bank assets. This strong position will enable Kuwaiti banks to continue supporting economic growth and development in the country.
Global Factors: Interest Rate Cuts and Digital Transformation
The US Federal Reserve’s 50 basis point rate cut in November has influenced GCC economies to follow suit, easing inflationary pressures and supporting economic activity. This rate cut is expected to be reflected in the books of banks with delayed effects, driving them to pursue higher yields.
With Brent crude prices expected to remain above $74 per barrel through 2027, fiscal surpluses are anticipated to support financial stability across the GCC region. GCC banks are accelerating their digital transformation efforts, increasing adoption of artificial intelligence, open banking, and digital currencies.
To fortify their profitability and improve cost optimization, banks should harness the power of digitization, generative AI, and API integration while committing to a sustainable future. This will enable them to adapt to changing market conditions and ensure continued growth in 2025 and beyond.
Conclusion
The GCC banking sector is poised for robust growth in 2025, driven by economic diversification efforts and favorable global financial conditions. Strong capital cushions, healthy asset quality indicators, and adequate profitability will continue to support credit expansion across the region. While challenges exist, including the need for digital transformation and adaptability to changing market conditions, the outlook for the GCC banking sector remains positive.
As the region continues to invest in large-scale infrastructure projects, grow non-oil activity, and implement favorable monetary policies, banks should remain confident in their ability to support economic growth and development. By embracing digitization and innovation, they can ensure continued profitability and competitiveness in a rapidly changing global landscape.