(MENAFN- The Arabian Post)

Loan growth among the largest banks in the Gulf Cooperation Council region surged in the second quarter of 2025, driven by a combination of lowered interest rates and an optimistic economic outlook. Saudi Arabia's Al Rajhi Banking & Investment Corp. posted the most significant growth, outpacing its competitors with a 19.31 per cent year-on-year rise, compared to 7.37 per cent in the previous year. This marked acceleration highlights the robust demand for credit in the region, bolstered by the economic recovery and less stringent borrowing costs.

Saudi National Bank followed suit with an increase in loan growth to 12.21 per cent, up from 10.25 per cent last year, reaffirming the strengthening of financial conditions in the kingdom. Both banks' performances were buoyed by a dip in regional interest rates, which had provided a conducive environment for borrowing, coupled with a positive shift in investor sentiment towards the broader GCC economy.

In the UAE, the largest lender, First Abu Dhabi Bank, mirrored this upward trend, registering a 10.71 per cent growth in loans, a notable improvement from 6.34 per cent in the same quarter of the previous year. FAB's performance has surpassed initial projections, prompting the bank to revise its full-year growth forecast to the low double digits from an earlier single-digit outlook. This optimistic adjustment signals the bank's confidence in sustaining growth momentum throughout the year.

Emirates NBD, another major player in the UAE banking sector, reported a similar expansion with a 14.28 per cent increase in loans for Q2 2025. Following this, the bank adjusted its annual loan growth expectations to the low double digits, indicating that higher-than-anticipated demand for credit is set to continue through the latter half of the year.

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The overall performance of these banks reflects a broader trend in the GCC region, where declining interest rates have made borrowing more affordable and attractive. Central banks across the region have made strategic moves to lower interest rates to stimulate economic activity, particularly in the wake of global uncertainties and fluctuations in oil prices. These rate cuts have provided businesses and consumers with access to more affordable credit, thus driving the demand for loans.

The recovery of key sectors such as real estate, construction, and retail has underpinned the banking sector's strong performance. With rising business activity, the region's banks have seen a marked increase in both corporate and personal lending, contributing to the robust growth in their loan portfolios. The improvement in economic sentiment has also played a pivotal role, as businesses and consumers alike feel more confident in taking on new debt to finance expansion or consumption.

The shift towards more favorable lending conditions has proven to be a significant factor in the banking sector's performance. As central banks continue to adopt dovish monetary policies, more credit is likely to flow into the market, potentially driving further loan growth in the coming quarters. The ease of borrowing, coupled with the improving economic landscape in the GCC, has created an environment where financial institutions can grow their loan books without compromising asset quality.

Despite the positive growth trends, some analysts caution that the region's banks may face challenges as global economic uncertainties remain, particularly surrounding energy prices and geopolitical tensions. While the outlook for the banking sector remains positive, sustained growth will depend on how effectively the banks manage potential risks that may emerge in the global market. However, for now, the GCC's banking giants are reaping the benefits of lower interest rates and a recovering regional economy.

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