RIYADH: High oil prices and interest rates are creating favorable operating conditions for banks across the Middle East, despite regional tensions, according to Fitch Ratings. During a recent webinar on the region’s banking sector, Fitch Ratings highlighted that in Saudi Arabia, lending growth is expected to be around double the regional average of 5-6 percent for the fiscal year 2024, driven by significant non-oil gross domestic product growth. This expansion presents new business opportunities for the Kingdom’s financial institutions and heightens competition for liquidity. The agency noted the Gulf Cooperation Council as a standout in the global banking landscape, adding that the region is benefiting from robust oil prices, elevated interest rates, substantial government expenditure, strong non-oil sector growth, and high investor and consumer confidence. These factors contribute to solid business conditions and healthy financial metrics for banks in most markets. Fitch Ratings highlighted that GCC financial institutions experienced record US dollar issuance in the first quarter of 2024, fueled by favorable pricing conditions, lending increases, refinancing needs, and strong investor demand. However, the credit rating agency noted that regional banks are currently at the peak of their cycle. Lower hydrocarbon prices pose a risk to financial operating environments across the Middle East, and each country faces unique challenges. In contrast to Saudi Arabia, the UAE has enjoyed stronger liquidity conditions, enhancing banks’ profitability metrics in 2023 and the first quarter of 2024, with the sector’s average net interest margin improving by 100 basis points over 2022–2023. Qatar’s banking sector notably relies on non-domestic funding, which constituted 42 percent of total holdings at the end of the first quarter of 2024. This dependence makes Qatari banks vulnerable to external political and economic shocks, as well as shifts in investor sentiment. In October last year, Fitch Ratings affirmed that banks in the GCC are thriving due to high oil prices, contained inflation, and rising interest rates. It also highlighted that financial institutions in the UAE are improving, and banks in Saudi Arabia, Qatar, and the UAE are well-positioned to benefit from rising interest rates due to quick loan book repricing and substantial low-cost funding.