GCC banks’ financial profiles will remain stable in 2026, underpinned by broadly stable profitability, supportive asset quality, and solid capitalisation, according to a new S&P Global Ratings report.
The report, ‘GCC Banks Show Stable Credit Fundamentals Despite The Overhang Of Event Risks’, underscores the fundamental resilience of the GCC banking sector and from Bahrain’s perspective, the analysis highlights key strengths that confirm its role as the region’s long-established financial hub.
It specifically notes the kingdom’s significant reliance on external funding, largely in the form of non-resident deposits. Rather than viewing this as a vulnerability, this trend is a powerful indicator of strong global investor confidence in Bahrain’s financial system and its success in acting as a regional gateway for capital.
The banking system, which is the largest non-oil contributor to the country’s GDP, effectively sources and mobilises international funds. The notable growth in external funding, which has doubled since 2022, is a direct result of the system’s high pace of asset growth and its remarkable efficiency in attracting and recycling international capital into productive local assets, thereby fuelling broader domestic economic expansion.
This high level of activity is supported by a mature and highly diversified financial ecosystem, overseen by the Central Bank of Bahrain (CBB), which includes global leaders in Islamic finance. This robust regulatory framework provides a credible structure that encourages the sustained inflow of non-resident deposits.
While the report points to government debt concerns, the stability of the kingdom’s financial institutions is anchored by its strong regional relationships and market access. Even following the sovereign credit rating adjustment to ‘B’ on November 21, 2025, S&P Global Ratings maintained a ‘Stable’ outlook, which signals that risks are manageable and no further immediate deterioration is anticipated.
Moreover, Bahrain has consistently maintained its access to international capital markets, regularly securing funding that demonstrates persistent global investor backing. Crucially, the stability of the kingdom’s banking sector is permanently underpinned by the expected unwavering support from fellow GCC sovereigns. This provides a significant strategic buffer against any severe external outflows, ensuring long-term confidence in the stability of the Bahraini dinar and the financial system as a whole. Bahrain’s institutions are thus protected by a powerful regional partnership.
The banking sector is strategically positioning itself for future sustainable growth by embracing global monetary normalisation. The projected decline in net interest margins (NIMs) by 20-30 basis points, stemming from anticipated US Federal Reserve interest rate cuts, is viewed as a managed adjustment that will significantly lower the cost of borrowing. This action is expected to stimulate domestic economic activity across Bahrain’s robust and diversified non-oil sectors, which are already the primary driver of national GDP.
Overall, the fact that 90 per cent of the broader GCC banking sector ratings carry a ‘Stable’ outlook affirms the kingdom’s strong position within a highly capitalised and financially sound regional environment. The sector’s focus remains on maintaining solid capitalisation and asset quality while proactively mitigating manageable risks, such as adverse geopolitical events or a significant drop in oil prices.
“The two main downside risks to our baseline scenario are adverse geopolitical developments undermining macroeconomic fundamentals and a significant drop in oil prices,” said S&P Global Ratings credit analyst Mohamed Damak. “The first risk could take the form of a protracted, regional conflict, which is not part of our base case. The second could emanate from a weaker global economy and significant oversupply in the global energy markets.”
avinash@gdnmedia.bh
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