Gulf banks could face domestic deposit outflows of $307 billion if the Middle East conflict deepens, S&P Global Ratings said.
An S&P report said it had seen no evidence of major outflows of foreign or local funding from banks in the Gulf, which have proved resilient since war broke out in the region last month.
But a prolonged conflict could trigger a flight to quality between banks within the same systems, as well as broader external and local funding exits, the ratings agency added.
Read more: Asia’s Rich Having Second Thoughts on Dubai as War Rages
S&P’s base case scenario assumes the most intense phase of the U.S.-Israeli war on Iran lasts two to four weeks, although it acknowledged in a report dated March 16 that spillovers and intermittent security incidents could extend beyond that.
The war, now in its third week and with no end in sight, has thrown global energy markets and transport into chaos as the conflict has spread, with multiple attacks on Dubai and other countries across the Gulf.
The conflict has tested banks in the Gulf as never before, with some international lenders shutting most UAE client-facing operations after Iran’s IRGC threatened attacks on economic centers and banks linked to the U.S. and Israel.
Banks insist they are continuing to serve clients, without interruption through their digital channels. But there have been operational disruptions to digital infrastructure.
Amazon Web Services reported on March 2 that drones struck three of its facilities in the UAE and Bahrain, disrupting cloud and IT services across the region, with some bank customers briefly losing access to online accounts.
S&P noted that some banks have established data centers and backup facilities outside the region where regulators permit, a contingency that has helped limit the impact of those strikes.
‘Overall, the Risk Appears Manageable’
Under S&P’s hypothetical stress scenario, domestic deposit outflows across the six Gulf Cooperation Council banking systems could reach $307 billion based on year-end 2025 figures.
Banks currently hold around $312 billion in cash or at central banks to absorb such outflows, with an additional buffer of roughly $630 billion available after liquidating investment portfolios at a 20% haircut, S&P added.
“Overall, the risk appears manageable,” S&P said, adding that four of the six GCC countries are considered highly supportive of their banking systems and that regional regulators have stepped up supervision since hostilities began.
Bahraini retail banks appear more vulnerable given recent increases in external debt, S&P added.
The UAE central bank has moved to reassure markets, with Governor Khaled Mohamed Balama earlier this month saying the banking sector has continued to operate normally.
UAE banks have benefited recently from rising credit demand as regional governments pour billions of dollars into sectors such as tourism and infrastructure.