How a Fragile US-Iran Ceasefire Impacts Gulf Banks

**Tim Elliott** (0:01)
It's the Morning Drive at Mira Business FM. Fitch Ratings says the future of Golf Banks now depends on one key factor, whether the US Iran ceasefire lasts. Now, while the region's lenders remain well capitalized, slower growth, property risks, and geopolitical uncertainty are starting to reshape the outlook. Senior Director, head of Middle East Bank Ratings and Islamic Banking as well at Fitch Ratings, Redmond Ramsdale joins me on the line. Redmond, good to have you on the program. Thanks for joining us.

**Redmond Ramsdale** (0:33)
Good morning. Thanks for having me. Nice to be here.

**Tim Elliott** (0:36)
We've seen the news regarding the US Iran ceasefire, of course. There's a sense of, I think we'll use that phrase from 10, 15 years ago, cautious optimism.
From your desk, Fitch, how fragile is the situation? When you say the future of Gulf banks depends on this ceasefire, are you talking about immediate liquidity? You're talking about long-term structural health?

**Redmond Ramsdale** (1:01)
Yeah, it's more the latter. If I take a step back, banks have fundamentally been resilient so far throughout this conflict. That's really because they've entered it in a position of strength. What do I mean by that? You alluded to some of it. Capital and liquidity buffers are strong.
If you look at asset quality, again, low non-performing loans, high loan loss allowances.
All of these buffers and credit fundamentals are in a very good position, which basically puts the banks in a very good position to weather whatever this conflict throws at it. What we're saying in our latest update is, we expect that to continue into the second half of this year, unless there is a resumption of the military conflict. In particular, it's if there's lasting damage to energy infrastructure or key GCC assets, and particularly if there is a prolonged closure of the strait. Really what we're saying is, if this ceasefire holds, then the first order impact, i.e.
a big impact on asset quality and liquidity and funding, won't happen, it'll be more the second order, which is really lower non-oil GDP growth. So we're forecasting lower non-oil GDP growth in three countries, actually contracting in three countries. That's Bahrain, that's Qatar, and that's the UAE, Abu Dhabi as well. But also weaker growth in Saudi and in Kuwait. And it's only Oman where it's actually going to be stronger than what we forecast for this year. So what does that mean for banks? Well, it means lower loan growth.
It could still be reasonable loan growth, but it means lower loan growth than what we forecast in our 2026 sector outlook for the region's banks at the end of last year. But it also means moderately weaker asset quality and moderately weaker profitability. So that's if the ceasefire holds. So overall, all these buffers create quite good protection against near-term credit risks.

**Tim Elliott** (3:19)
Okay. So you have changed the sector outlook from neutral to deteriorating in your latest reports. Banks are still well capitalized, as you point out, that we're very well aware of. So the alarm bells that we're hearing, that you're commenting on, really, it's really simply continued uncertainty.

**Redmond Ramsdale** (3:44)
Well, our sector outlook revision to deteriorating reflects the war. It reflects these adverse macro economic inputs that I just mentioned, i.e. that weaker non-oil real GDP growth, and then the knock-on impact that that will have on lower growth for the banks. And that deteriorating sector outlook is quite distinct from a rating outlook.
So I think you're probably right in terms of how you just said it.

**Tim Elliott** (4:23)
Okay.
You forecasted that non-oil GDP growth in several GCC states would contract this year. How is that slowdown translating into loan growth for the banks? And are we seeing a pullback in lending to the key sectors, you know, the real estate or logistics?

**Redmond Ramsdale** (4:43)
Okay. Yeah. So really what it means is it just means there's going to be less business activity out there. It doesn't mean there's not any business activity out there because we can actually see that there is.
I mean, we were we were forecasting for the region loan growth of about 8% for 2026 Now that's actually really strong.
What we'll probably see is something closer to 6% if the ceasefire holds. So weaker growth, this is loan growth, but still pretty respectable. I would still say a lot of countries and a lot of regions would be quite happy with 6% growth. So it's just less sort of business activity. Yeah, there is going to be less lending into tourism, potentially real estate, but it's still carrying on for sure.

**Tim Elliott** (5:40)
In terms of asset quality, are you concerned that banks are currently maybe underestimating the second round effects of the conflict? Where is the risk most concentrated right now? Is it the SME sector or are we looking at larger, maybe more systemic infrastructure projects?