Gulf Lenders Set For Stronger Credit Expansion

(MENAFN- The Arabian Post)

Bank lending across the UAE, Saudi Arabia and wider Middle East is projected to gather momentum next year as resilient economic conditions and steady financing demand strengthen the outlook for regional lenders. The assessment reflects the prevailing view among major rating analysts that banks have entered the coming year with solid balance sheets, expanding pipelines in corporate and retail credit, and a supportive macroeconomic environment.

Fitch Ratings indicated that banks are positioned to increase lending activity, supported by robust non-oil growth in Gulf economies and the continuation of large-scale government and private-sector projects. The ratings firm noted that although benchmark rates are expected to ease, banks across the region retain sufficient pricing power and maintain funding profiles that allow for sustainable expansion. Analysts observing regional financial markets have pointed to strong loan demand from sectors such as energy, infrastructure, tourism, logistics and real estate, which continue to receive extensive backing from Gulf development strategies.

The expectation of higher credit growth sits against a backdrop of easing global monetary conditions. Central banks in the Gulf, which largely track the US Federal Reserve due to currency pegs, are preparing for a rate-cut cycle that could narrow net interest margins. However, banks are expected to cushion the impact through growing loan volumes, ongoing cost discipline and diversified income streams. Fitch Ratings said lenders will maintain generally sound profitability, supported by stable asset quality, healthy liquidity and capital buffers that remain adequate for their risk profiles.

Bank executives across the UAE and Saudi Arabia have signalled confidence in the lending environment, stressing that underlying credit demand remains durable. Market data shows that corporate loan books in both countries have been expanding, driven by investments in industrial capacity, renewables, advanced technology and transport corridors. The UAE's economic diversification initiatives, supported by higher tourism inflows and rising private consumption, have also bolstered lending appetite among domestic and international firms operating in the country.

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Saudi Arabia's financial sector continues to play a central role in delivering Vision 2030 projects, with major banks extending financing for housing, manufacturing, entertainment, and giga-projects. The scale of these commitments has helped maintain strong system-wide loan growth at a time when global credit conditions have been uneven. The broader Middle East banking landscape mirrors this pattern, with lenders in Qatar, Kuwait, Bahrain and Oman also expected to support credit expansion linked to national development programmes and strategic investments.

Analysts tracking liquidity trends say banks in the region are benefiting from stable deposit bases supported by healthy economic activity and favourable employment dynamics. Government-related deposits have remained steady, aided by energy revenues and fiscal buffers that continue to underpin public spending. At the same time, household deposits have grown in several markets, improving the funding mix and ensuring that lenders retain comfortable liquidity coverage ratios.

Asset quality indicators continue to reflect disciplined underwriting and cautious risk management across Gulf banks. Non-performing loan ratios have remained low by global standards, and provisioning levels are considered sufficient to absorb potential stress. Banks have benefited from strengthened regulatory oversight and enhanced risk-assessment frameworks that were introduced over the past decade. Analysts expect that asset quality will remain broadly stable, with limited deterioration even in an environment of lower interest rates, partly due to the region's supportive economic backdrop.

Despite the positive outlook, regional banking systems remain attentive to potential challenges. Geopolitical tensions, fluctuations in oil prices and global economic uncertainty could influence credit demand and funding conditions. Banks are also adjusting to evolving regulatory expectations, including measures to improve transparency, combat financial crime and encourage digital transformation. Executives say that investment in digital infrastructure, cybersecurity and customer experience will continue to shape competitive dynamics in the sector.

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