Gulf Banks Weather Iran Conflict with Strong Earnings Despite Economic Uncertainty

The ongoing conflict in Iran and the Middle East has created uncertainty for oil markets, but Gulf banks have managed to withstand its economic fallout. Despite nearly five months of war, these lenders have continued to post strong earnings due to their robust position at the start of the conflict. According to recent reports, Abu Dhabi Commercial Bank saw a 34% annual jump in profit to 3.37 billion dirhams ($920 million) in the second quarter.

The First Abu Dhabi Bank, the UAE's largest lender by assets, reported a 4% increase in profit to 5.72 billion dirhams during the same period. Meanwhile, Al Rajhi Bank in Saudi Arabia posted a 14% jump in profit to 7.01 billion Saudi riyals ($1.89 billion) for April 1 to June 30.

Fitch revised its outlook on the Middle Eastern banking sector from 'neutral' to 'deteriorating' due to the prolonged Iran conflict, citing weakening assets in key economic sectors such as contracting, hospitality, real estate, and tourism. However, analysts point out that Gulf banks entered the conflict with strong fundamentals after several years of improving conditions.

'This is owed to a pre-conflict three-year period of benign operating conditions in the Gulf with structural reforms and strong non-oil activity during which GCC banks saw their standalone credit fundamentals improve further on top of already strong solvency and liquidity profiles,' said Badis Shubailat, vice president at Moody's Ratings.