Today's Edition
MAYS IBRAHIM (ABU DHABI)
UAE banks are expected to maintain stable financial profiles in 2026, supported by strong credit growth, solid asset quality and ample liquidity, according to a new report by S&P Global Ratings.
In its latest outlook, the ratings agency said credit quality across the sector should remain stable next year, even as profitability eases slightly due to lower interest margins and a normalisation in the cost of risk.
Banks posted strong profitability in 2025, helped by robust lending growth, lower provisioning needs and high interest margins, while liquidity improved as deposit growth outpaced new lending.
S&P expects margins to come under pressure in 2026 as interest rates decline, but said strong loan growth and diversified income streams should continue to support earnings.
The agency expects lending growth of between 10% and 12% in 2026, compared with an estimated 12% in 2025, assuming no major geopolitical shocks.
Retail lending will remain the main driver, underpinned by population growth, rising employment and stronger demand for mortgages and personal loans as borrowing costs fall.
Retail credit has expanded at an average annual rate of 13.6% since 2021.
Corporate lending is also expected to benefit from strong domestic economic activity, infrastructure investment, improved trade flows and tourism-related developments.
S&P forecasts UAE economic growth of about 4.7% in 2026, following an estimated 4.5% in 2025, driven largely by non-oil sectors including construction, financial services, transport, hospitality and manufacturing.
The agency expects average oil production of around 3.4 million barrels per day next year.
Despite the positive outlook, S&P warned that downside risks remain.
A spike in regional geopolitical tensions or a significant and prolonged drop in oil prices could weigh on banks’ credit profiles, particularly if it affects real estate activity, tourism, trade and investment flows.
Lower interest rates also pose a challenge. With the US Federal Reserve expected to cut rates further in 2026, the Central Bank of the UAE is likely to follow suit to maintain the dirham’s peg to the dollar, compressing net interest margins. However, S&P said strong credit growth, low funding costs and rising fee and commission income should help offset the impact.
Asset quality is expected to remain resilient. Stage 3 loans at the UAE’s 10 largest banks stood at 2.7% of total loans as of September 2025, down from a peak of 6.1% in 2021, while provision coverage exceeded 100%.
Exposure to real estate and construction has also declined to about 14% of total lending.
UAE banks are expected to maintain strong capital buffers, with an average Tier 1 capital ratio of 16.5%, supported by solid profitability and moderate dividend payouts.
Liquidity and funding positions are also expected to remain robust, backed by strong deposit growth and limited reliance on external funding.
