S&P issues warning on Gulf bank deposits ‘if war persists’

• Potential outflows of up to $307bn
• But banks have ‘strong capital base’
• Regulators could step in, agency says

Customers could withdraw up to $307 billion from Gulf banks if the Iran war persists, S&P Global Ratings warned on Tuesday.

The credit ratings agency’s forecast is based on a scenario in which the most intense stage of the conflict, which began on February 28 with US-Israeli attacks on Iran, lasts two to four weeks.

S&P estimates that Gulf lenders’ own cash holdings and deposits at central banks total $312 billion – and so exceed the $307 billion of potential outflows.

Banks could also sell investment portfolios, which would raise the total amount of money “to deploy” to $630 billion, according to S&P.

“We understand that major outflows of foreign or local funding have not yet occurred,” the agency wrote in a report published on Tuesday.

“That said, if the war persists, it’s possible there could be some flight to quality between banks within the same systems, as well as external or local funding outflows.”

It added: “Overall, we expect some deterioration in banks’ financial performance in 2026, the extent of which will depend on the conflict’s duration and impact on local economies.”

Qatari banks would face potential funding shortfalls should there be significant deposit outflows, although “the amounts appear manageable”, S&P wrote.

Gulf banks’ capital adequacy ratios are high, while loan defaults are low – the average non-performing loan ratio is 2.5 percent – so lenders entered the ongoing war “from a strong capital base”, according to S&P.

The report pointed to the conflict’s effect on important sectors including logistics, tourism, real estate and retail, but said its full impact on banks’ asset quality – namely, loan defaults – would “take time to materialise”.

If a bank’s non-performing loan ratio rose to 7 percent, or its total number of non-performing loans increased by 50 percent – whichever is greater on an individual bank basis – the Gulf’s 45 biggest banks would suffer combined losses of about $37 billion, S&P estimates.

The same banks made an aggregate annual profit of $66 billion last year.

“During previous shocks, such as Covid-19, regulators intervened with forbearance measures, enabling banking systems to absorb potential loan impairments over time,” the report states.

“We anticipate regulators would take similar action should a comparable shock occur.”

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