GCC banking sector remains resilient with strong performance in H1 2025
Banks in the Gulf Cooperation Council (GCC) maintained a strong performance in the first half of the year, with sustained profitability, asset quality, and capitalization all improving. That is according to the GCC Banking Sector Outlook from EY.
In the first six months of 2025, 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%, according to EY 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.
Mayur Pau, MENA Financial Services Leader at EY, said: “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.”
“Bank profitability remains intact, underpinned by rising non-interest income and stable asset quality. Credit growth remains solid, particularly in Saudi Arabia and the United Arab Emirates, where transformation agendas continue to drive lending activity.”
Liquidity and margins under pressure
Despite strong fundamentals, GCC banks are adjusting to a changing environment, as monetary policy easing and tighter liquidity begin to impact margins. Net interest margins dropped 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.
“Net interest margins are under pressure following rate reductions implemented in late 2024, which triggered loan repricing at lower yields. This trend is expected to persist with further rate cuts announced in September 2025. However, banks are actively diversifying revenue streams and enhancing operational efficiency to sustain profitability,” said Pau.
Transformational shifts expected
The EY report notes that banks continue to adapt by 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 remain priorities.
“These initiatives are reshaping business models and positioning the sector for long-term competitiveness,” Pau concluded.
