Today's Edition
BATOOL GHAITH (ABU DHABI)
The UAE’s banking sector expanded strongly in 2025 while maintaining high levels of capitalisation, liquidity and resilience, according to the Central Bank of the UAE’s Annual Report.
Analysts say the country’s regulatory approach is increasingly positioning it among the world’s most stable and forward-looking financial systems.
The report showed that banking sector assets reached approximately Dh5.4 trillion by the end of 2025, while lending grew by 17.9% year-on-year and deposits increased by 16.2%, reflecting continued momentum across the financial system.
At the same time, the Central Bank’s stress testing exercises showed that participating banks continued to meet minimum capital requirements even under severe recession scenarios, reinforcing confidence in the sector’s resilience amid global uncertainty.
Dr. Wissam El Khoury, Associate Dean of the School of Business at the American University in Dubai and Wealth and Investment Consultant, said the Central Bank’s latest stress-testing framework goes beyond standard global regulatory requirements under Basel III.
“Basel III sets minimum global capital and liquidity standards, but by itself it does not amount to a full supervisory worldview,” Dr. El Khoury told Aletihad.
He noted that the Central Bank has increasingly embedded stress testing into a broader and more forward-looking risk framework tailored to the UAE’s economic realities.
According to the 2025 Annual Report, the stress-testing exercises incorporated a severe geo-economic confrontation and trade disruption scenario, alongside a climate-related physical risk scenario.
The process was complemented by regular top-down stress tests and bank-level climate assessments covering real estate collateral sensitivity to flooding, storm surges and heat stress.
“That is more than mechanical compliance, it is a supervisory model that uses qualitative and thematic judgment to test vulnerabilities before they become visible in headline ratios,” he explained.
He added that the results reinforce confidence in the sector’s ability to absorb shocks, noting that “all participating banks met minimum capital requirements even under the severe global recession scenario. That is a more intervention-ready model”.
Dr. Ryan Lemand, Co-founder of Neovision Wealth Management, said banking assets, credit and deposits all recorded strong growth while liquidity indicators remained well above international standards.
“The strong growth in assets, credit and deposits alongside successful stress tests indicates that CBUAE regulation is conservative yet pro-growth,” Dr. Lemand told Aletihad.
Despite global pressures including higher interest rates, geopolitical tensions and tighter liquidity conditions, UAE banks continued to demonstrate stability throughout 2025.
El Khoury attributed this resilience to macroeconomic strength, liquidity management and pre-emptive regulation.
Liquidity conditions remained favourable due to system-wide excess reserves, active use of Monetary Bills and Islamic Certificates of Deposit, and alignment of policy settings with the US Federal Reserve under the dirham peg, El Khoury said.
Measures including Domestic Systemically Important Bank buffers, the new 0.5% cycle-neutral Countercyclical Capital Buffer, climate and real-estate stress testing, and expanded supervisory technology have also contributed to resilience.
“UAE banks have been operating in a system where macro performance, liquidity management and prudential oversight have reinforced one another rather than pulling in different directions,” he said.
Dr. Lemand similarly noted that UAE banks entered this period from a position of strength.
“UAE banks have maintained stability because they entered this period with strong capital and liquidity, improving asset quality and profitability, diversified credit and funding, and operate within a supportive macro environment,” he said.
Analysts said the strength and scale of the banking sector is reinforcing the UAE’s role as a regional and global financial centre.
“A financial centre is not defined only by size, it is defined by trust, depth and execution capacity,” El Khoury said.
He added that while the balance-sheet scale is substantial at about Dh5.4 trillion, the more strategic point is that this scale is matched by resilient funding, successful stress-test outcomes, digital-finance infrastructure, and an increasingly integrated regulatory regime across banking, payments, insurance and fintech.
El Khoury also pointed to strong international confidence in the UAE’s banking system. The country’s standalone Banking System Credit Rating remained stable at Baa2, while peer comparisons across 28 countries placed the UAE within the top 10 globally.
“That matters internationally because investors and institutions look for jurisdictions where capital can move efficiently, settle safely, and operate within a credible supervisory framework,” he said.
He also cited broader global assessments supporting the UAE’s position.
“The World Bank’s Gulf Economic Update Fall 2025 highlighted the UAE as the Gulf’s most diversified economy, while the IMF pointed to resilience, strong non-oil growth and continued attraction of foreign capital,” he said.
Dr. Lemand added that the banking sector’s strength is reinforcing the UAE’s role as a platform for regional and international finance.
“This strength reinforces the UAE’s role as a regional and global financial hub by providing a large, well-capitalised and liquid banking system with assets above Dh5 trillion that aligns with international standards,” he said.
“It also offers a robust platform for cross-border finance and fintech development from centres like Abu Dhabi and Dubai.”
Beyond banking, analysts linked the UAE’s financial rise to its expanding global economic role.
Lemand noted that Abu Dhabi’s selection to host the 2029 Annual Meetings of the International Monetary Fund and the World Bank reflects growing influence in global economic governance.
“Abu Dhabi’s selection marks its formal entry into the inner circle of global economic governance… a systemic player whose capital, institutions and diplomatic reach warrant a seat at the table,” he said.
“Winning 190 votes signals genuine peer confidence in the UAE’s regulatory maturity, geopolitical reliability, and institutional capability,” he added.
