Qatar’s banking sector operating environment could weaken under adverse scenarios for the Iran conflict. Bank asset quality, profitability and liquidity could also come under pressure. This could lead to Viability Rating (VR) downgrades, although support measures may reduce this risk, according to top ratings agency Fitch.

A significantly longer or more severe war than our baseline assumption would also slow economic activity and weaken bank credit growth, reducing banks’ business opportunities. 

The conflict’s impact is already likely to be significant for the liquefied natural gas (LNG) sector. Other sectors could face similar pressure or extended effects under adverse scenarios, it stated.

"Weaker cashflow in affected sectors could undermine debt-repayment capacity, especially in debt-intensive sectors such as tourism and hospitality, and those already under stress, such as real estate and contracting," remarked Redmond Ramsdale, the Senior Director, Head of Middle East Banks Ratings and Islamic Banking. 

"This could weaken bank asset quality and increase the origination of problem loans, leading to higher credit costs. Further challenges to profitability could emerge from higher funding costs and cost of risk under adverse scenarios, as well as from inflation," he stated.

Fitch conducted a severe asset-quality stress test on Qatari banks, assuming impaired loans ratios tripled, or even quadrupled, from end-2025 levels, while Stage 3-specific provision coverage was unchanged.

The results indicate all banks would likely become loss-making, partly because their coverage is very high. In practice, we expect banks would reduce provisioning to protect operating income under such circumstances, it added.

The stress test also assumes banks suspend growth and cut dividend payments. Under this scenario, most banks’ common equity Tier 1 (CET1) ratios would remain well above the regulatory minimum of 8.5%, indicating the sector’s strong capacity to absorb potential asset-quality pressures, said Fitch. 

Some smaller banks would see their CET1 ratios falling below 8.5%. However, we expect Qatar Central Bank (QCB) would deploy forbearance measures, and that capital support from the government, which holds stakes in all Qatari banks, would be forthcoming well before capital ratios fall below this level, it added.

Qatari banks had strong capital and liquidity buffers, as well as provision coverage, before the conflict, and asset-quality metrics were sound. The average CET1 ratio was a strong 15.7% at end-2025, and the coverage of Stage 3 loans by total provisions (146%) was one of the highest among GCC member states. 

These buffers should ensure banks weather pressures from the conflict under our base case.

Qatari banks’ funding structure is a rating weakness, partly due to high reliance on non-resident funding, which is vulnerable to shocks. A more extended or severe conflict could reduce external investors’ risk appetite, raising funding costs. However, Qatari banks hold ample high-quality liquid assets. Fitch estimates most would be able to withstand a short-term liquidity stress, assuming a 10% deposit outflow, retaining comfortable liquidity coverage of deposits and funding. Nevertheless, coverage would fall to around 10% for two banks.

The QCB’s pre-emptive liquidity support measures reduce the reserve requirement for deposits by 1pp, and extend the repo facility with the QCB to three months, from overnight currently, for an unlimited amount. Fitch believes the QCB would further support banking sector liquidity, if needed, through bank deposits, as it did during the 2017 blockade.

The QCB’s pre-emptive support measures, allowing banks to defer principal and interest repayments by up to three months for customers affected by the conflict, will help maintain sound metrics for the sector, but could mask the true extent of asset-quality deterioration.

All Qatari banks’ Long-Term Issuer Default Ratings (IDRs) are driven by government support and are primarily sensitive to the sovereign’s ability to provide support. Fitch placed them on Rating Watch Negative early this month alongside several Short-Term IDRs, following similar action on Qatar’s sovereign rating.