DUBAI: Gulf banks could face domestic deposit outflows of USD307 billion if the Middle East conflict deepens, S&P Global Ratings said. An S&P report said it had seen no evidence of major outflows of foreign or local funding from banks in the Gulf, which have proved resilient since war broke out in the region last month. But a prolonged conflict could trigger a flight to quality between banks within the same systems, as well as broader external and local funding exits, the ratings agency added. S&P’s base case scenario assumes the most intense phase of the US-Israeli war on Iran lasts two to four weeks, although it acknowledged in a report dated March 16 that spillovers and intermittent security incidents could extend beyond that. The war, now in its third week and with no end in sight, has thrown global energy markets and transport into chaos as the conflict has spread, with multiple attacks on Dubai and other countries across the Gulf. The conflict has tested banks in the Gulf as never before, with some international lenders shutting most UAE client-facing operations after Iran’s IRGC threatened attacks on economic centres and banks linked to the US and Israel. Banks insist they are continuing to serve clients, without interruption through their digital channels. But there have been operational disruptions to digital infrastructure. Amazon Web Services reported on March 2 that drones struck three of its facilities in the UAE and Bahrain, disrupting cloud and IT services across the region, with some bank customers briefly losing access to online accounts. S&P noted that some banks have established data centres and backup facilities outside the region where regulators permit, a contingency that has helped limit the impact of those strikes. Under S&P’s hypothetical stress scenario, domestic deposit outflows across the six Gulf Cooperation Council banking systems could reach USD307 billion based on year-end 2025 figures. Banks currently hold around USD312 billion in cash or at central banks to absorb such outflows, with an additional buffer of roughly USD630 billion available after liquidating investment portfolios at a 20 percent haircut, S&P added. “Overall, the risk appears manageable,” S&P said, adding that four of the six GCC countries are considered highly supportive of their banking systems and that regional regulators have stepped up supervision since hostilities began. Bahraini retail banks appear more vulnerable given recent increases in external debt, S&P added. The UAE central bank has moved to reassure markets, with Governor Khaled Mohamed Balama earlier this month saying the banking sector has continued to operate normally. UAE banks have benefited recently from rising credit demand as regional governments pour billions of dollars into sectors such as tourism and infrastructure. Total assets rose 17.1 percent to 5.34 trillion dirhams (USD1.45 trillion) in 2025 from a year earlier, with the loan portfolio expanding nearly 18 percent and deposits growing around 16 percent in the same period, the central bank said on Tuesday. S&P said the full impact on loan books will take time to materialise, with logistics, transportation, tourism, real estate, retail and hospitality among the most exposed sectors. Under a high-stress scenario assuming either a 50 percent increase in non-performing loans (NPL) or a NPL ratio of 7 percent of total loans, whichever is greater, cumulative losses across the region’s top 45 banks could reach around $37 billion, S&P said.