As the regional operating environment grows more complex, KPMG outlines how financial institutions can strengthen credit risk management and protect long-term portfolio resilience

Dubai, UAE, 03August 2026: Credit resilience is becoming a defining priority for financial institutions as the risk landscape grows more complex and interconnected. KPMG’s latest analysis, “Credit Risk Considerations During Times of Geopolitical Upheaval”, outlines a practical framework to help financial institutions strengthen credit risk management through forward-looking scenario analysis, stronger governance, and dynamic portfolio monitoring.

Craig Wright, Partner and Head of Enterprise Risk Services at KPMG Middle East

The analysis comes as the GCC banking sector continues to demonstrate strong financial fundamentals.Earlier this year, KPMGreportsfound the sector maintained a strong capital adequacy ratio of 19.3%, reflecting years of prudent risk management and balance sheet discipline. This strong capital position provides a solid 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 influence borrower performance, funding conditions, and portfolio quality across the region. It argues that maintaining credit resilience increasingly depends on institutions’ ability to anticipate emerging risks before they translate into credit deterioration.

Craig Wright, Partner and Head of Enterprise Risk Services at KPMG Middle East, said: “The GCC financial sector has done the hard work of building strong capital buffers and disciplined provisioning practices. That gives institutions a solid foundation. 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.”

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 important stabilizing role central banks may play in supporting liquidity during periods of prolonged market disruption.

Across all scenarios, the analysis 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.

The analysis outlines practical recommendations to help financial institutions strengthen credit resilience as conditions evolve. These include 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 continues to evolve, financial institutions are encouraged to further embed geopolitical and macroeconomic developments into their credit risk frameworks, building on the strong financial foundations that have enabled the sector to remain resilient through periods of heightened uncertainty.

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