Gulf banks earnings are facing challenges in the first quarter of 2026 due to regional conflicts and shrinking lending margins. Analysts expect year-on-year declines in several Gulf countries despite strong loan growth earlier in the year.
The Iran conflict and the recent ceasefire influenced investor sentiment and private consumption, particularly affecting tourism, hospitality, and other key industries. Banks responded by taking precautionary provisions to prepare for potential credit risks.
Elena Sanchez-Cabezudo, head of Mena financials equity research, forecasts a five percent drop in UAE and Kuwaiti banks’ first-quarter profits. She predicts Qatari lenders will see a six percent decline, while Saudi banks may report a six percent increase due to strong loan growth.
Typically, the first quarter brings solid earnings for Gulf banks. However, this year is expected to be mixed, according to Rahul Bajaj, director of Mena equity research at Citi. He predicts that roughly half of the Gulf banks covered will report year-on-year profit declines for Q1.
Qatar National Bank reported near-flat net profit of QR4.3 billion ($1.2 billion) without taking extra provisions related to the conflict. Analysts noted that the full impact of the war will not appear immediately in all Q1 results, but some effects are already visible.
New loans, mortgages, and credit card spending likely fell in March after strong growth in January and February. This slowdown may reduce fee income for banks. Country-level loan growth forecasts include 8 percent in Saudi Arabia, 19 percent in the UAE, 10 percent in Kuwait, and 9 percent in Qatar.
Cost of risk, which covers provisions for potential loan defaults, remains a key factor. Most Gulf banks had strong credit quality entering the conflict, thanks to prior cleanups of non-performing loans. Support packages from central banks could further mitigate risks.
Net interest margins are under pressure due to previous rate cuts and increased funding costs during the conflict. Higher interest on deposits temporarily raised banks’ funding expenses, which may normalize once the conflict stabilizes.
Gulf banks earnings reflect both resilience and vulnerability. Strong prior credit quality and regulatory support help offset risks, but regional developments continue to challenge profitability.
