Moody’s has adjusted its outlook on the UAE’s banking sector from positive to stable, citing expected declines in profitability as interest rates fall and corporate taxes rise, according to its latest report. Despite these challenges, the agency highlighted improvements in loan quality, supported by enhanced credit risk regulations from the Central Bank of the UAE.

(Tap or click the headline above to read this story with all of the links to our background as well as external sources.)

Moody’s sees the UAE’s non-oil GDP growth slowing to 5% in 2025 from 5.4% in 2024. However, strong business confidence and government-backed infrastructure projects are expected to sustain lending activity. The agency’s projection aligns with Emirates NBD’s forecast of 5% growth and Fitch Solutions’ BMI’s projection of 5.1%, but remains above the 4% growth forecasted by the IMF and World Bank, and slightly lower than First Abu Dhabi Bank’s 5.6% estimate.

The agency also anticipates a decline in problem loans, falling to around 3-4% of total lending, driven by regulatory improvements and reduced borrowing costs. UAE banks continue to maintain strong capital buffers and stable provisioning coverage, the report said. Capital buffers are also expected to remain solid over the next 12 to 18 months as banks balance earning retention and asset expansion, the report said.

Last month, S&P Global also predicted a slight decline in UAE banks’ net incomes, following two years of high earnings buoyed by rising interest rates. Lending activity — growing at an average rate of 4.8% since 2019 — remains a key stabilizing factor for the sector, S&P Global said.

ON THE GCC FRONT- Moody’s also revised Saudi Arabia’s banking outlook to “stable,” warning that tight financing conditions are emerging as credit demand outpaces deposit growth, with Saudi banks increasingly relying on government deposits, market financing, and higher-cost term deposits to support growth.

Meanwhile, Oman’s banking outlook was upgraded to “positive,” supported by improving loan quality and 3% projected non-oil GDP growth in 2025-2026. Moody’s kept its outlook for Kuwait, Bahrain, and Qatar at “stable,” with no major changes expected.

Tags: