Profitability and asset high quality improved whilst rate of interest cuts and tighter liquidity started to weigh on margins.
The report famous that the GCC financial system is forecast to develop by 3 per cent in 2025 and 4.1 per cent in 2026, supported by infrastructure funding, diversification initiatives, and personal sector progress.
GCC banking progress
Oil GDP is anticipated to extend by 1.7 per cent in 2025 earlier than accelerating to five.4 per cent in 2026, with non-oil exercise persevering with to drive regional progress.
Mayur Pau, EY MENA Monetary Companies Chief, mentioned: “The primary half of 2025 demonstrates the resilience of the GCC banking sector. With stable capital buffers, more healthy steadiness sheets and improved effectivity, banks are well-positioned to navigate near-term pressures and pursue long-term alternatives.
“As digital adoption, sustainability and regulatory readiness advance, the sector will proceed to play a central function in supporting the area’s financial transformation.”
The sector’s common return on fairness (ROE) stood at 13.2 per cent, supported by increased non-interest revenue and effectivity features.
The price-to-income ratio improved to 32 per cent, reflecting operational optimisation and digitalisation.
Asset high quality strengthened, with non-performing loans declining to 2.4 per cent from 2.8 per cent a yr earlier.
Protection ratios remained above 140 per cent, whereas capitalisation was strengthened with a median Tier 1 ratio of 17.5 per cent and a capital adequacy ratio of 18.9 per cent, underlining the sector’s resilience.
Margin and liquidity pressures
Regardless of sturdy fundamentals, banks confronted pressures from price cuts and tighter funding situations. Web curiosity margins eased to 2.6 per cent in H1 2025, down from 2.8 per cent in the identical interval final yr, with additional compression anticipated after September 2025 reductions.
Liquidity additionally tightened, with the loan-to-deposit ratio rising to 94.1 per cent from 90.7 per cent in H1 2024.
Mayur Pau added: “Financial institution profitability stays intact, underpinned by rising non-interest revenue and steady asset high quality. Credit score progress stays stable, significantly within the Kingdom of Saudi Arabia and the United Arab Emirates, the place transformation agendas proceed to drive lending exercise.
“Nevertheless, internet curiosity margins are beneath stress following price reductions carried out in late 2024, which triggered mortgage repricing at decrease yields. This development is anticipated to stick with additional price cuts introduced in September 2025.
“Nevertheless, banks are actively diversifying income streams and enhancing operational effectivity to maintain profitability.”
Transformational shifts
EY highlighted that banks are adapting to long-term structural adjustments by embedding sustainability, accelerating digital transformation, and getting ready for evolving regulatory necessities.
Adoption of AI-driven banking, enhanced digital buyer platforms, and compliance with Basel III and AML/CFT frameworks stay priorities.
In line with the report, these initiatives are reshaping enterprise fashions and positioning GCC banks for long-term competitiveness in an setting of fast financial diversification and technological change.
