S&P said banking sector deposits increased by a further 4.9% in the first four months of 2026 compared with the end of last year.
The UAE banking sector has emerged from the Middle East conflict with its resilience intact, supported by strong liquidity, robust capitalisation and swift intervention from the Central Bank of the UAE (CBUAE), according to S&P Global Ratings and Fitch Ratings.
Despite weaker economic activity, disrupted trade and softer tourism during the conflict, both agencies say UAE banks remain among the strongest in the GCC and are well positioned to absorb the impact, with only limited pressure expected on asset quality and profitability.
The latest CBUAE data underscores that resilience. Total banking assets rose 17.7% year-on-year to Dh5.56 trillion at the end of the first quarter of 2026, while gross credit expanded 20.3% to Dh2.7 trillion. Customer deposits increased 17.4% to Dh3.45 trillion, and broad money supply (M3) grew 17.7% to Dh3.41 trillion, reflecting continued confidence in the country’s financial system despite geopolitical uncertainty.
S&P said banking-sector deposits rose a further 4.9% in the first four months of 2026 compared with the end of last year, driven mainly by government and public-sector entities.
Government deposits increased by 13.6%, while public-sector deposits rose by 14.6%, significantly strengthening banks’ funding profiles.
As of April, UAE banks held about $73 billion in domestic investments and roughly $187 billion in deposits with the CBUAE. More importantly, their net external asset position reached around $233 billion—equivalent to about 40% of total domestic loans—marking the strongest ratio among GCC banking systems.
According to S&P, this provides lenders with substantial capacity to absorb capital outflows and withstand periods of market stress.
The Central Bank has also played a key stabilising role by expanding access to reserve balances, providing additional liquidity facilities in both dirhams and US dollars, and temporarily easing certain regulatory liquidity requirements.
Borrowing from the CBUAE rose to Dh31 billion by April from just Dh1.1 billion at the end of 2025, reflecting precautionary use of liquidity facilities rather than signs of financial distress.
Capital levels remain comfortably above regulatory thresholds. The aggregate capital adequacy ratio stood at 16.8% at the end of March, well above the Basel III minimum of 13%, while Tier 1 capital reached 15.7%. Banks also maintained surplus liquidity of around Dh181 billion with the central bank, providing an additional buffer against market volatility.
Although banks remain exposed to sectors affected by the conflict, S&P considers the risks manageable. Lending to hospitality, trade, transport, construction and real estate accounted for about 27% of total loans at the end of 2025, down from 35% five years earlier, reflecting improved diversification. Direct exposure to hospitality is less than 1% of total lending.
The rating agency expects the cost of risk for the largest UAE banks to rise to 70–80 basis points this year, up from 49 basis points in 2025, as lenders adopt more conservative provisioning. Even so, the non-performing loan ratio for the 10 largest banks remained stable at 2.4% in March.
Mohamed Damak, Head of Islamic Finance at S&P Global Ratings, said the UAE banking sector entered the crisis from a position of strength, supported by several years of strong profitability, healthier balance sheets and prudent risk management.
Fitch Ratings reached a similar conclusion, noting that UAE banks are well positioned to withstand the regional conflict. Even under severe stress scenarios where impaired loans could triple or quadruple, most rated banks would still operate comfortably above minimum capital requirements. While real estate remains the largest credit exposure, lenders have strengthened underwriting standards and diversified portfolios.
Outside banking, the insurance sector has also remained resilient. S&P expects insurance revenues to grow about 10% this year after rising 17% in 2025, supported by strong underwriting, firmer premiums and extensive reinsurance coverage.
The conflict’s biggest impact has been on the sukuk market. UAE sukuk issuance fell to $3.6 billion this year from $22.1 billion in 2025, with most deals completed before geopolitical tensions escalated.
Damak said weaker investor sentiment, rather than credit deterioration, has driven the slowdown. Fitch agreed, noting that the decline reflects uncertainty and reduced appetite rather than weaker fundamentals, and expects issuance to recover gradually as conditions stabilise.
Overall, both S&P and Fitch conclude that while the conflict has disrupted capital markets and slowed activity, the UAE banking system remains highly resilient. Strong government support, ample liquidity, solid capital buffers and proactive CBUAE oversight continue to underpin stability, reinforcing the UAE’s position as one of the region’s most robust financial centres.
