RIYADH: Gulf Cooperation Council banks posted $15.6 billion in net profit for the first three months of 2025, a 7.1 percent rise from the previous quarter and the highest on record.
According to a report by Kuwait-based Kamco Invest, the strong performance was supported by higher non-interest income, a sharp drop in loan impairments, and lower operating expenses. This came despite a decline in net interest income, which fell for the first time in eight quarters.
The UAE posted the highest quarterly increase in net profit, with earnings rising by $639.6 million compared to the previous quarter, followed by gains in Saudi Arabia and Bahrain.
On an annual basis, year-on-year growth was mixed across the region. While Saudi banks recorded a strong 17.2 percent increase in net income, banks in Qatar and Kuwait reported declines.
Total revenues edged up just 0.04 percent to a record $34.6 billion, supported by resilient credit demand and a sharp decline in provisioning costs.
According to the report, aggregate gross loans increased 3.6 percent, the fastest pace in 15 quarters, while customer deposits surged 5.1 percent to reach $2.65 trillion, underscoring continued liquidity strength across the region.
However, interest earnings declined as the effects of rate cuts in the second half of 2024 began to take hold. Net interest income, the revenue banks earn from loans after subtracting what they pay on deposits, fell 1.7 percent to $22.8 billion. At the same time, the average yield on credit dropped to 4.16 percent, down from 4.21 percent.
The latest performance underscores the GCC banking sector’s resilience following several years of strong credit expansion, supported by government-backed infrastructure projects, low credit defaults, and high liquidity buffers.
Unlike banks in developed markets that have grappled with rising delinquencies and interest rate volatility, lenders in the Gulf have benefited from robust capitalization, prudent risk management, and steady non-oil economic growth.
The combination of stable monetary policy, rising consumer and corporate demand, and state-led diversification initiatives continues to differentiate the region’s banking landscape, even as global financial conditions tighten.
Saudi banks lead credit expansion
Despite this decline, Saudi banks stood out for their substantial credit expansion. According to Kamco Invest, the Kingdom posted the region’s highest year-on-year loan growth in the first quarter. This growth was broad-based, covering sectors such as construction, real estate, education, and transportation. Outstanding credit facilities in the nation reached SR3.1 trillion, according to the Saudi Central Bank.
Kamco also noted that Saudi banks reported one of the highest loan-to-deposit ratios in the GCC, at 95.5 percent, during the first quarter, underscoring aggressive lending activity relative to deposit mobilization.
Current and savings account balances stood at $561 billion, accounting for 63.3 percent of total deposits, indicative of a strong, low-cost funding base. However, external analysts have raised caution over potential funding constraints.
A recent report by Bloomberg highlighted the growing pressure on Saudi banks to sustain deposit growth amid a tightening liquidity environment.
In the absence of further expansion in CASA deposits, Bloomberg consensus forecasts suggest that lending growth in the Kingdom may decelerate to between 11 and 12 percent in 2025, compared to an estimated 14 percent last year.
While project finance and mortgage lending continue to support overall loan book growth, Bloomberg noted that corporate overdrafts and trade finance facilities have shown volatility over recent quarters.
According to Kamco’s data, the region as a whole continues to show signs of balance sheet strength, with loan impairments falling by one-third to $2.1 billion. This drove the cost of risk down to 0.45 percent, among the lowest levels in recent years.
Saudi banks recorded the lowest cost of risk at just 0.30 percent, benefiting from improved asset quality and a supportive economic environment. Operating expenses across the GCC also declined by 4.3 percent to $13.6 billion, helping maintain a cost-to-income ratio of 40 percent.
GCC banks diversify income
According to Kamco, return on equity remained strong across the board, averaging 13.6 percent for listed GCC banks. UAE banks posted the highest ROE at 16.6 percent, followed by Saudi Arabia at 13 percent and Qatar at 12.7 percent. However, net interest margins across the region dipped slightly to 3.10 percent from 3.14 percent due to the re-pricing of loans at lower rates. UAE banks retained the highest NIM at 3.34 percent.
Even as interest income moderated, banks expanded their non-interest income, which included fees, commissions, and investment gains. Non-interest income rose 2.2 percent to $11.8 billion in the first quarter, led by UAE-listed banks with a 3.9 percent quarterly gain to $5.2 billion.
According to the data presented in Kamco’s report, this rising contribution from non-interest income implies a gradual diversification of GCC banks’ revenue streams, helping offset margin compression and supporting profitability amid a more challenging interest rate backdrop.
The performance of GCC banks stands in contrast to global banking trends, where high interest rates and tighter credit conditions have weighed on profitability.
According to Kamco Invest, citing the International Monetary Fund, global credit risk is rising as borrowers face higher debt service burdens, with approximately $5.5 trillion in corporate debt maturing in 2024.
This particularly affects the leveraged loan market, where default rates have increased. Meanwhile, Gulf banks benefit from strong capital buffers, low non-performing loan ratios, and government-backed infrastructure investments. The GCC-wide loan-to-deposit ratio eased slightly to 81.6 percent, indicating that most banks continue to hold more deposits than loans, providing a liquidity cushion.
Kamco’s analysis also noted that central banks across the GCC largely maintained policy rates during the quarter, offering monetary stability amid global uncertainty.
In Kuwait, total credit exceeded 50 billion Kuwaiti dinars for the first time, while Qatar saw its strongest loan growth in over two years, mainly due to lending to public entities and contractors.
Looking ahead, rating agencies maintain a stable view of the region’s banking sector. Moody’s and Fitch Ratings expect profitability to remain solid in 2025, supported by strong capitalization, effective risk management, and continued non-oil economic expansion.
The IMF forecasts gross domestic product growth of 3.5 percent across the GCC this year in 2025, with Saudi Arabia, the UAE, Qatar, and Bahrain driving momentum. S&P Global’s latest purchasing managers’ index data also points to robust private sector activity, with Saudi Arabia at 58.1 in March, the UAE at 54.0, and Qatar at 52.0 — all above the neutral 50 mark.
With resilient lending activity, improving asset quality, and evolving income structures, GCC banks continue to show adaptability in the face of global uncertainty. As governments push ahead with diversification agendas and infrastructure investment, the banking sector is likely to remain a key engine of growth across the region.
