Strong net foreign asset position keeps UAE tariff-resilient: The UAE’s banks have “the strongest net external asset position” among GCC countries, which give banks in the country the highest resilience to any potential capital outflows resulting from current volatility in the market, global ratings agency S&P Global wrote in a research note last week.

Risks remain for the UAE — and for the GCC at large: GCC banks’ reliance on high-quality fixed-income instruments will help keep the impact of the capital market volatility manageable for most banks in the region. However, banks that are active in private equity investment, debt, or capital market advisory services could see lower revenues resulting from the volatility in the market. A further drop in oil prices may also lead to “higher pressure on banks’ asset-quality indicators.”

GCC banks are still resilient, and an increase in non-performing loans (NPLs) is unlikely to impact banks’ solvency. The region’s top 45 banks had a NPL ratio of 2.9% by the end of 2024, and displayed “relatively good” profitability. Banks in the region had also set aside “provisions in excess of 150% of their stock of NPLs on the same date, which provides them with some cushion to absorb additional shocks.”

S&P outlined two separate scenarios for NPLs — in the first scenario, NPLs see a 30% increase from the figure reported at year-end 2024 with an NPL ratio of 5%. The second scenario assumes a 50% increase in NPLs and sets the ratio at least at 7%. In both scenarios, the impact is below the USD 60 bn in net income that the top 45 banks in the GCC generated in 2024 — meaning that, even in S&P’s worst-case scenario, any potential shocks are expected to only impact GCC banks’ “profitability rather than their solvency.”

S&P had already been bearish on UAE banks’ profitability levels this year, predicting back in January 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 at the time.

Leading credit agencies seem to be in agreement on GCC banks’ strong position in the face of instability: Credit rating agency Fitch Ratings sees the recently implemented US tariffs having a limited effect on GCC banks’ operating environments, as GCC exports to the US remain largely limited to hydrocarbon exports, which are exempt from tariffs — however, lower oil prices and weaker global demand are cited as the primary risks for banks’ operating environments in the GCC, with the tariffs potentially spurring an additional drop in oil prices, which could weaken Fitch’s lending growth forecasts.

Banks will continue to tap debt markets-

GCC banks are expected to remain active in the bond and sukuk markets despite recent volatility triggered by the tariffs, Zawya reports, citing State Street Global Advisors’ Karine Kheirallah. Despite a lull at the start of the month, banks are set to go ahead with issuances according to their funding plans, she added.

The region’s strong banking sector and fiscal buffers put it in a strong position, particularly if the US Federal Reserve begins cutting interest rates, Kheirallah said.

REMEMBER- The UAE has emerged as the world’s top-performing sukuk market since Trump’s return to the White House, outpacing even the US. Assets of emerging markets with strong domestic fundamentals like the UAE have been viewed to be tariff-safe, with January alone seeing USD 35.4 bn in portfolio flows to EMs, with most directed toward debt.

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