Banks in the UAE will maintain robust growth in their lending activities, bolstered by relaxed monetary policies and a favorable economic environment
GCC banks will continue to benefit from strong capital levels, supporting their overall performance in 2025. According to the EY GCC Banking Sector Outlook 2024 report, the expansion of gas production in Qatar, implementation of economic transformation projects in Saudi Arabia, and non-oil economic growth in Bahrain and the UAE will underpin the resilience of GCC banks this year.
In addition, the Brent crude price is expected to stay above $74 per barrel for 2025-2027, which will help uphold banking sector resilience.
“As we go into the first quarter of 2025, the GCC banking industry should remain strong due to considerable capital cushions, healthy asset quality indicators and adequate profitability,” stated Mayur Pau, EY MENA financial services leader.
Rising lending volumes to propel growth
Credit growth in most GCC countries is broadly based on a strong project pipeline, with aggregate contract awards driven by infrastructure development, especially in Saudi Arabia and the UAE. Therefore, the positive trajectory in GCC banks is expected to continue in the near future. This outlook is also supported by rising lending volumes, increased fee income, stable margins and effective cost management. As the cost of lending becomes more favorable, GCC countries might expand their investments globally.
“Furthermore, resilient economies, the region’s economic diversification efforts and enabling policies will support higher consumption and investment, further boosting the sector’s performance. The upcoming financial year looks to be a transformative period, with advancements in technology, shifts in consumer behavior and regulatory changes shaping the future of banking,” added Pau.
High oil prices, economic growth support GCC banks’ finances
GDP growth in the GCC is projected at 3.5 percent in 2025. Interest rate cuts, in addition to further investment and structural reform initiatives, will mean non-oil growth of over 3.4 percent in the region’s two largest economies – Saudi Arabia and the UAE.
According to the International Monetary Fund (IMF), the current account surplus is expected to be 8.2 percent of the GDP in 2025. On the fiscal front, a surplus of 3.9 percent of the GDP is forecast for 2025.
Global oil demand is also expected to increase by 1.6 mbpd to 104.5 mbpd in 2025, reflecting the end of the post-COVID-19 pandemic release of pent-up demand, challenging global economic conditions and clean energy technology deployment. Non-OPEC+ producers are likely to account for the bulk of the increase if OPEC+ voluntary cuts remain in place.
High oil prices – with the average for 2024 estimated at $81 per barrel – and favorable economic growth have supported the GCC banks’ healthy finances.
Furthermore, GDP growth in the GCC is forecast to rebound to 3.5 percent in 2024, up from 1.4 percent, as oil production gradually increases, providing a boost to the region’s economies. Hydrocarbon growth is likely to be 3.3 percent, while non-hydrocarbon sectors are forecast to grow at 3.4 percent, supported by strong domestic investment momentum.
Read: Fitch affirms Qatar’s rating at ‘AA’ with a stable outlook
Credit demand and reduced borrowing costs to boost credit growth
GCC banks have shown sustained growth in credit facilities during 2024, supported by economic transformation plans, robust project pipeline, healthy demand and resilient economic conditions. The banks are well-capitalized with strong asset quality indicators and are likely to uphold this strong performance trajectory throughout 2025.
Banks in the UAE will likely maintain robust growth in their lending activities, bolstered by relaxed monetary policies and a favorable economic environment. Furthermore, growth in deposits consistently outpaced lending, supported by corporate and retail segments.
Asset quality will also remain strong, as the banks capitalize on high profits to provision for legacy loans. Credit demand and reduced borrowing costs are expected to boost credit growth during 2025.
Meanwhile, Saudi banks reported healthy credit growth in 2024, backed by broad-based loan growth, especially in the private sector. This was primarily due to various project developments in line with Vision 2030. The country’s planned megaprojects will play a role in creating enormous business and lending opportunities for banks this year.
“To fortify their profitability and improve cost optimization in the current landscape, GCC banks should consider how to best navigate a new normal that not only addresses regulatory fragmentation and national interests, but fully harnesses the power of technology and its multiple scopes such as digitization, generative AI (GenAI), open banking and APIs, and the digital currency revolution – all while committing to a sustainable future. This will ensure they remain competitive and agile to better counteract the pressure of contracting margins,” concluded Pau.
