$2.59 trillion in outstanding loans to Gulf banks
A report by KAMCO Invest indicated that the Gulf banking sector continued to operate within a complex operating environment in the second quarter of 2026, amid ongoing regional geopolitical disruptions and the persistence of interest rates at elevated levels for longer than expected, which cast a shadow on profit growth momentum. Nevertheless, key indicators for the banking sector showed a slowdown in the pace of lending activity growth over the past two quarters compared to the record-high levels recorded in previous years. Conversely, revenues and net profits reached new record levels during this quarter, supported by strong performance from companies in Saudi Arabia and the UAE.
Total revenues for the banking sector reached a new record high of $36.2 billion, with quarterly growth of 2.4%, marking the strongest growth pace recorded over three consecutive quarters.
Banks in the UAE and Saudi Arabia recorded annual net profit growth of 8.2% and 8.4%, reaching $6.8 billion and $6.6 billion, respectively. Meanwhile, banks in Oman and Kuwait recorded similarly strong net profit growth of 9.9% and 7.5%, respectively.
Total outstanding loans reached $2.59 trillion by the end of the quarter, registering quarterly growth of 2.6%, compared to 2.2% in the first quarter, which represented the weakest quarterly growth pace in eight quarters. Annual growth also improved to 11.6%, while net loans grew by 2.7% to $2.51 trillion. All six Gulf countries recorded growth in total loans.
UAE banks led the region for the second consecutive quarter in the second quarter, with growth of 4.5%, supported by the completion of Emirates NBD’s acquisition of a majority stake in India’s RBL Bank in June, which added loans worth AED 44 billion to the group. Omani banks followed with growth of 4.1%, while Kuwaiti banks recovered, recording growth of 2.3%. Total sector assets reached $4.07 trillion by the end of the quarter, up 1.4% quarterly, with Islamic banks accounting for 27.7% of the total.
The report also covered data from Gulf central banks, showing that total outstanding credit facilities in the six countries reached approximately $2.2 trillion by the end of June 2026, registering annual growth of 8.8% and quarterly growth of 1.7% compared to March 2026. Saudi Arabia remained the largest credit market in the region, accounting for 41.4% of the total, followed by the UAE at 26.9% and Qatar at 18.4%. UAE banks recorded the highest total growth rate at 13.8% annually, followed by Oman at 12.7%. Second-quarter data indicates continued strength in credit demand across the region, although the components of growth were uneven.
The report noted that total outstanding credit facilities for residents in Kuwait reached KD 54.75 billion by the end of June 2026, up 5.9% annually and 1.1% quarterly. In Saudi Arabia, the figure stood at SAR 3.42 trillion, registering annual growth of 7.3% and quarterly growth of 1.9%. In the UAE, it reached AED 2.18 trillion, with annual growth of 13.8% and quarterly growth of 1.7%, representing the highest total growth rate among Gulf countries. In Qatar, it stood at QAR 1.47 trillion, up 5.9% annually and 1% quarterly. In Bahrain, it reached BHD 13.54 billion, registering annual growth of 8.5% and quarterly growth of 2.3%. In Oman, it reached OMR 30.25 billion, up 12.7% annually and 3.4% quarterly.
The report also noted that lending activities among Gulf banks regained some momentum in the second quarter, following weak performance in the first quarter. Total Gulf loans reached a new record high of $2.59 trillion, up 2.6% on a quarterly basis, compared to 2.2% in the first quarter of 2026, which had marked the slowest quarterly growth pace over eight quarters.
It pointed out that with the growth rate remaining slightly below the 2.7% recorded in the fourth quarter of 2025, the second-quarter performance reflects greater stability rather than a full return to last year’s growth pace. However, it indicates that the decline in credit demand immediately following the outbreak of the war was temporary. The annual growth rate also improved to 11.6%. The recovery was broad-based, with all six countries recording quarterly growth. Islamic banks continued to outperform their conventional counterparts, with financing growing by 3.3% during the quarter, compared to 2.4% for conventional banks.
While highlighting the return of Kuwaiti banks to loan growth in the second quarter, the report noted that total loans rose 2.3% on a quarterly basis to reach $290.6 billion, after declining 1.1% in the first quarter. Data from the Central Bank of Kuwait showed a sharp decline in credit facilities directed at the trade sector and goods imports. However, growth in other portfolio components adequately offset this decline, with housing loans rising 3.8% in the first half of the year, while consumer loans fell 1.6%. Total cash credit facilities used increased by 1.9% to KD 64.93 billion.
The report recorded a record high for total customer deposits at Gulf banks, standing at $2.92 trillion at the end of the second quarter, up 1.7% on a quarterly basis. This rate represents half of the 3.4% growth recorded in the first quarter, bringing deposit growth back in line with the trend observed over the past two years. Annual growth compared to the second quarter of 2025 reached 6.8%.
The net loan-to-deposit ratio rose to 85.9%, up from 85% in the first quarter, marking a new record and maintaining its position above the 80% threshold for the ninth consecutive quarter.
In Kuwait, the ratio increased to 77.9% from 75.2% due to a decline in deposits, while in the UAE it rose to 74.1% from 72.7%, and in Bahrain to 70.9% from 68.8%. The ratios in these three markets remained below the regional average.
The report stated that total net interest income for Gulf banks rose 1.9% on a quarterly basis, reaching a record high of $24.9 billion in the second quarter, a clear improvement compared to the near-stagnant 0.9% growth recorded in the first quarter. Key interest rates in the region remained unchanged throughout the quarter, as Gulf central banks moved in tandem with the US Federal Reserve, which kept the federal funds rate within the 3.5% to 3.75% range. Total interest income amounted to $57.3 billion, against interest expenses of $32.4 billion.
Net interest income for Kuwaiti banks remained largely stable at $2.7 billion, while Bahraini banks recovered part of the decline recorded in the first quarter of the year, reaching $0.8 billion. Omani banks continued to achieve regular quarterly gains, reaching $0.7 billion.
