Gulf banks could face deposit outflows of up to $307 billion if the Middle East conflict intensifies, according to a report by S&P Global Ratings, highlighting potential risks to the region’s financial systems.
The report said there is currently no evidence of major withdrawals from local or foreign funding, but warned that a prolonged conflict could trigger shifts in deposits within banking systems as well as broader capital outflows.
No major outflows yet
S&P said banks across the Gulf Cooperation Council (GCC) have remained resilient since the conflict began, with stable funding conditions so far.
However, under a stress scenario based on 2025 data, domestic deposit outflows across GCC banking systems could reach $307 billion if conditions worsen.
Liquidity buffers in place
Banks in the region currently hold around $312 billion in cash or reserves with central banks, providing a buffer against potential withdrawals.
S&P added that an additional $630 billion could be available through the liquidation of investment portfolios, indicating that overall risks remain manageable under current assumptions.
Impact of ongoing conflict
The conflict, now in its third week, has disrupted energy markets and regional operations, with attacks reported across parts of the Gulf.
Some international banks have scaled back client-facing operations in the United Arab Emirates following security threats, although institutions continue to provide services through digital platforms.
Infrastructure disruptions reported
Cloud service provider Amazon Web Services reported that drone strikes hit facilities in the UAE and Bahrain earlier this month, temporarily disrupting IT and online banking services for some users.
S&P noted that many banks have contingency systems, including data centres outside the region, which have helped limit the impact of such disruptions.
Sector exposure and risks
Sectors including logistics, tourism, real estate, retail and hospitality are considered most exposed to the economic effects of the conflict.
Under a high-stress scenario, cumulative losses across the region’s top 45 banks could reach around $37 billion, depending on changes in non-performing loan levels.
Banking system remains stable
S&P said Gulf banks are entering the current period from a position of relative strength, supported by regulatory measures and strong balance sheets.
The central bank in the United Arab Emirates has also said the banking sector continues to operate normally, despite market volatility and declines in bank share prices.
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