Gulf Banks Face Potential $307 Billion Funding Risk

Banking institutions across the Gulf region have maintained stable deposit levels despite ongoing regional tensions, yet they face a potential domestic funding drain of up to $307 billion should the current conflict intensify and persist, according to a report from S&P Global Ratings. The rating agency's base-case scenario assumes the most intense phase of the conflict will last between two and four weeks. However, S&P Global Ratings noted that secondary effects and intermittent security incidents could extend the period of instability. While there is currently no evidence of significant foreign or local capital flight, a prolonged war could trigger a flight to quality within domestic banking systems or lead to broader external funding exits. Under a hypothetical stress scenario based on year-end 2025 figures, domestic deposit outflows across the six Gulf Cooperation Council banking systems could reach $307 billion. To mitigate such risks, regional banks currently hold approximately $312 billion in cash or reserves at central banks. An additional buffer of roughly $630 billion is estimated to be available through the liquidation of investment portfolios, even after applying a 20% haircut to their value. Despite the scale of potential outflows, S&P Global Ratings characterized the overall risk as manageable. The agency highlighted that four of the six regional nations are considered highly supportive of their respective banking sectors. Furthermore, regional regulators have intensified their supervision and oversight since the onset of hostilities to ensure financial stability.