MUSCAT: Banks across the Gulf region maintained a strong performance in the first half of the year, with sustained profitability, asset quality, and capitalization all improving. The sector continues to demonstrate resilience even as monetary policy easing and tighter liquidity begin to impact margins, global professional services firm EY stated in its latest GCC Banking Sector Outlook for H1 2025.
The GCC economy is forecast to grow by 3% in 2025, rising further to 4.1% in 2026, supported by infrastructure investments, diversification initiatives and private sector dynamism. Oil GDP is expected to recover modestly by 1.7% in 2025 before accelerating to 5.4% in 2026, while non-oil sectors drive growth through ongoing reforms and foreign investment. These conditions provide a supportive backdrop for banking activity across the region.
Mayur Pau, EY MENA Financial Services Leader, commented: “The first half of 2025 demonstrates the resilience of the GCC banking sector. With solid capital buffers, healthier balance sheets and improved efficiency, banks are well-positioned to navigate near-term pressures and pursue long-term opportunities. As digital adoption, sustainability and regulatory readiness advance, the sector will continue to play a central role in supporting the region’s economic transformation.”
The GCC banking industry’s average return on equity stood at 13.2%, reflecting higher noninterest income and stronger cost efficiency. The cost-to-income ratio improved to 32.0%, indicating sustained benefits from operational optimization and digital transformation.
Asset quality strengthened, with non-performing loans declining to 2.4% from 2.8% a year earlier, while coverage ratios remained above 140%. Capitalization remained a core strength with an average Tier 1 ratio of 17.5% and a capital adequacy ratio of 18.9%, reinforcing the sector’s capacity to absorb external shocks.
Despite strong fundamentals, GCC banks are adjusting to a changing environment. Net interest margins eased to 2.6%, compared to 2.8% in H1 2024, reflecting the impact of rate cuts across the region, with further compression expected following September 2025 reductions. Liquidity conditions also tightened, with the loan-to-deposit ratio rising to 94.1%, up from 90.7% in the previous year. These factors highlight the importance of efficiency gains, funding diversification, and revenue expansion beyond interest income.
The report notes that banks continue to adapt by embedding sustainability, accelerating digital transformation, and preparing for evolving regulatory requirements. Adoption of AI-driven banking, enhanced customer-facing digital solutions, and alignment with frameworks such as Basel III and Anti-Money-Laundering and Countering the Financing of Terrorism (AML/CFT) remain priorities. These initiatives are reshaping business models and positioning the sector for long-term competitiveness.
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