GCC Banks Stay Resilient Amid US–Iran Ceasefire Uncertainty: Fitch

Durability of ceasefire remains key to regional financial stability, says Fitch Ratings

Fitch Ratings has said that the stability of Gulf Cooperation Council (GCC) banking systems will largely depend on whether the current US–Iran ceasefire holds and develops into a lasting peace agreement.

In its latest analysis, Fitch noted that the 17 June Memorandum of Understanding (MoU), which extended the initial 8 April ceasefire, has reduced the likelihood of extreme credit shocks. The agreement also sets a 60-day framework for both sides to pursue a permanent settlement and includes provisions encouraging Iran to facilitate the reopening of the Strait of Hormuz to commercial shipping.

However, Fitch cautioned that despite the agreement, continued military exchanges since mid-June highlight ongoing uncertainty and the fragile nature of the truce.

Ceasefire Stability Crucial for Economic Outlook

Fitch said GCC banking systems have so far demonstrated strong resilience, and this is expected to continue through the second half of 2026—provided there is no large-scale return to conflict that damages key infrastructure or disrupts energy flows through the Strait of Hormuz.

The agency maintains that a prolonged closure of the Strait remains a key risk scenario, though its baseline assumption is limited disruption of around five months in the worst case.

Economic Slowdown Already Emerging

Even if the ceasefire holds, Fitch expects GCC banks to feel indirect pressure through slowing macroeconomic conditions. It forecasts non-oil GDP contraction in three of the six GCC countries in 2026, with only Oman expected to show stronger non-oil growth compared to 2025.

Weaker economic activity is expected to reduce loan growth, moderately weaken asset quality, and put pressure on profitability across the banking sector.

These risks contributed to Fitch revising its outlook for Middle East banks from “neutral” to “deteriorating” in its mid-year update, reflecting the impact of the conflict environment.

Banking Sector Buffers Remain Strong

Despite the challenges, Fitch emphasized that GCC banking systems retain strong financial buffers. Ratings remain primarily supported by expectations of sovereign backing, limiting negative rating actions so far.

Only Qatari banks have been placed on Rating Watch Negative, in line with sovereign rating pressure.

Fitch highlighted that the region’s banks are predominantly deposit-funded, with government and government-related entities accounting for around 20%–30% of total deposits—providing a stable funding base even during periods of volatility.

Key Risk Channels: Assets and Liquidity

Fitch identified asset quality and liquidity as the two main transmission channels from the conflict to the banking sector.

Sectors such as infrastructure, aviation, logistics, transport, tourism, and real estate are expected to face the greatest strain from weaker demand conditions. Small and medium-sized enterprises (SMEs), which have less financial resilience than large corporates, are also considered more vulnerable.

In the UAE, a sharper-than-expected correction in the Dubai property market could place additional pressure on smaller banks with higher real estate exposure.