ISLAMIC banks across the GCC maintain sufficient buffers to withstand shocks from ongoing regional conflict, provided the turmoil remains contained, Fitch Ratings said in a report.
The ratings agency noted that Sharia-compliant lenders in the Middle East, Africa, Asia, and CIS markets possess enough liquidity and sovereign backing to navigate current instability. However, a significant escalation in the Iran conflict remains a primary tail risk.
“An adverse scenario in the Iran conflict could significantly weaken financing growth, asset quality, profitability, capital and liquidity buffers,” Fitch stated in its Global Islamic Banks Hotspots – April 2026 report. “Banks could also face greater refinancing risk amid weaker investor sentiment.”
Fitch highlighted that GCC banks specifically benefit from strong government backing and a favourable regulatory environment, which bolsters their resilience. These lenders currently maintain improving fundamentals and ample liquidity that serve as a safety net against localised economic pain. However, the agency cautioned that a widening of the conflict could trigger a slump in bond issuances and heighten refinancing risks, potentially weakening overall asset quality across the sector.
The outlook follows a year of robust activity in 2025. Fitch had previously forecast that the GCC would see sustained momentum in US dollar-denominated debt issuance throughout 2026, though a regional blowup could derail that trajectory.
While credit quality remains sound for now, the agency warned that an uncontained escalation would likely tighten liquidity and pressure the profitability of lenders across the regional Islamic finance landscape.
avinash@gdnmedia.bh
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