Emerging-market banks have withstood the Iran conflict, with rating upgrades outnumbering downgrades in the first nine months of 2026, Fitch Ratings said on September 30.

The agency has cut its Middle East banking outlook to "deteriorating" from "neutral" and sees a negative net outlook bias for Gulf Cooperation Council banks. It also lowered sector outlooks for Turkey, the Philippines, Sri Lanka and Latin America. Upgrades were led by the sub-investment-grade segment.

Fitch said central banks raised rates early in response to higher energy prices, while strong buffers, particularly in the Middle East, meant the oil price spike hit less hard than expected. Stronger balance sheets since 2020 helped contain credit losses. More expensive liquidity weighed on margins in the Middle East and Asia-Pacific in the first half.

Gulf banks' first-half earnings held up on strong non-interest income, but Fitch expects the cost of risk to rise in the second half. It estimates government and government-related deposit inflows into Gulf banking systems at $77bn in the first half, led by the UAE ($27bn) and Saudi Arabia ($24bn). Its baseline assumes a durable agreement to reopen the Strait of Hormuz will not come until around the first quarter of 2027.

Gulf banks' dollar debt issuance fell to about $59bn between January and end-September, from a record $102bn in all of 2025. Certificate of deposit issuance dropped 38%, and Saudi banks' issuance fell about 50%. Fitch expects 2027 issuance of $70bn-$80bn, assuming oil at $70 a barrel, down from $87 in 2026.

In the Commonwealth of Independent States (CIS) and Georgia, Fitch counted eight acquisitions involving rated banks since early 2024, five of them in the past 12 months, and expects more. Sector return on equity averaged 32% in Kazakhstan in 2022-2025, against 25% in Armenia, 24% in Georgia and 17% in Azerbaijan.

Fitch Ratings is a global credit rating agency, part of Fitch Group, which is owned by Hearst. Its ratings on banks feed into funding costs and investor access across emerging markets.