By Santiago Castillo, Saumitra Sehgal, Luca Turba, Mortaza Nadjafi and Julian Gulden

Gulf Cooperation Council banks have delivered a measurable reduction in non-performing loan (NPL) ratios over the past five years. Regulatory reforms, economic diversification programs, and active balance-sheet management have all contributed. But a closer look at the underlying drivers raises a critical question: have GCC banks built genuine structural resilience, or has the improvement been largely shaped by write-offs and favorable macroeconomic conditions? With credit volumes at record levels, regulatory expectations tightening, and geopolitical uncertainty adding new downside pressure, the answer to that question carries significant strategic weight for senior decision-makers across the region's banking sector.

A divergent trajectory across the three largest GCC markets

The NPL picture across the GCC is not uniform. Saudi Arabia's banking sector has achieved a striking improvement, with the market-average NPL ratio reaching 1.2 percent in 2024, supported by progressively tighter lending standards from the Saudi Arabian Monetary Authority and the economic diversification effects of Vision 2030. The UAE has delivered consistent annual improvement, reducing its sector NPL ratio from 8.2 percent in 2020 to 4.7 percent by end-2024, driven by a rapid economic rebound and active portfolio cleanup — including NPL portfolio sales to international investors.

Qatar presents a markedly different picture. The country's sector-wide NPL ratio rose from 2.0 percent in 2020 to 3.6 percent in 2024, reflecting post-World Cup real estate pressures and concentrated sectoral exposures. While there are early signs of stabilization in 2025, Qatar's trajectory remains the most uncertain of the three markets.

The forces converging to make structural action urgent

Several developments are narrowing the window for structural action. Credit volumes have expanded significantly in recent years — driven by Vision 2030 mega-projects in Saudi Arabia, real estate and corporate expansion in the UAE, and North Field-linked diversification in Qatar. Even with stable NPL ratios now, the larger absolute stock of impaired exposures than at any previous point, hints to an expected further deterioration in loan quality, that will surface across a substantially bigger base.

At the same time, regulators across the region are raising expectations. The Saudi Arabian Monetary Authority, the Central Bank of the UAE, and the Qatar Central Bank are all moving toward more stringent IFRS 9-aligned provisioning frameworks and enhanced stress testing requirements. For banks that have relied on accelerated write-offs to improve headline ratios, the available buffer is narrowing: as write-off activity normalizes, the quality of underlying credit risk management will become the primary driver of NPL performance. High coverage ratios suggest that impairment risk may be front-loaded rather than resolved. Geopolitical developments in the Middle East add a further dimension of risk, with potential pressure on SME, retail, and trade-sector borrowers in particular.

A dual-track path to sustainable credit quality

Addressing this challenge effectively requires two complementary types of intervention, deployed simultaneously. The first is proactive: building the organizational, governance, and process infrastructure that prevents new NPLs from forming, or identifies early warning signals before they crystallize into defaults. The second is reactive: resolving the existing stock of impaired exposures through structured corporate restructuring, liquidity management, and disciplined recovery of high-value distressed accounts. Neither approach is sufficient without the other. Proactive measures take 12 to 24 months to translate into measurable ratio improvement; reactive measures, deployed alone, treat the existing stock without addressing the conditions that generate new NPLs.

Roland Berger's analysis of leading financial institutions excelling in NPL management shows that the critical differentiator is not whether banks have both types of capabilities in place — most do, at a basic level — but the depth and sophistication with which each is applied. The gap between having a process and having an effective process is where most value is either created or lost in NPL management. Our report, Resilience in the GCC banking sector, sets out the structured frameworks and concrete first steps that enable banks to close this gap — and makes the case for why the right moment to act is now, while balance sheets remain strong enough to absorb the investment.