Credit resilience is becoming a defining priority for financial institutions as the regional risk landscape grows more complex and interconnected, KPMG said in its latest analysis.
The analysis, “Credit Risk Considerations During Times of Geopolitical Upheaval,” outlines a framework for financial institutions to strengthen credit risk management through forward-looking scenario analysis, stronger governance and dynamic portfolio monitoring.
The analysis comes as the GCC banking sector continues to demonstrate strong financial fundamentals. Earlier this year, KPMG found that the sector maintained a capital adequacy ratio of 19.3%, reflecting years of prudent risk management and balance sheet discipline.
KPMG said the strong capital position provides a foundation for financial institutions as they build credit resilience in an evolving operating environment.
Against a backdrop of heightened geopolitical tensions and disruption around the Strait of Hormuz, the analysis examines how external events can affect borrower performance, funding conditions and portfolio quality across the region.
It said maintaining credit resilience increasingly depends on institutions’ ability to anticipate emerging risks before they translate into credit deterioration.
“The GCC financial sector has done the hard work of building strong capital buffers and disciplined provisioning practices. That gives institutions a solid foundation,” Craig Wright, partner and head of Enterprise Risk Services at KPMG Middle East, said.
“Today’s environment calls for continuous reassessment rather than periodic review. Institutions need to challenge assumptions, stress-test portfolios against multiple scenarios, and ensure credit decisions reflect emerging risks, not just historical conditions,” he said.
Four scenarios
At the core of the analysis is a four-scenario framework that enables financial institutions to assess how different geopolitical and economic conditions could affect liquidity, funding costs and asset quality.
Rather than predicting a single outcome, the framework supports scenario analysis, stress testing and provisioning across a range of potential operating environments, from short-term disruption to prolonged structural change.
The analysis also highlights the stabilizing role central banks may play in supporting liquidity during periods of prolonged market disruption.
Across all scenarios, it identifies three consistent pressure points.
Retail portfolios face income erosion and inflation-driven repayment stress.
Corporate borrowers are exposed to revenue disruption, tighter funding costs and drawdown pressure on credit facilities.
Commercial real estate, particularly in markets with significant expatriate populations, faces collateral valuation risk as conditions shift.
Strengthening resilience
KPMG’s analysis recommends updating credit loss assessments to reflect the latest macroeconomic conditions, regularly stress-testing portfolios, strengthening oversight of higher-risk sectors and reinforcing governance over credit risk management.
As the operating environment evolves, financial institutions are encouraged to further embed geopolitical and macroeconomic developments into their credit risk frameworks.
The approach builds on the strong financial foundations that have enabled the GCC banking sector to remain resilient through periods of heightened uncertainty.
