Speaking of real estate…: Fitch Solutions’ research unit BMI is confident that UAE banks will weather a potential decline in real-estate prices, supported by a reduced exposure to the construction sector in recent years, it said in a research note on its website.

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Property prices may strain banks with high real estate exposure: The expected decline in property prices this year will impact the financial soundness of banks with higher exposure to the construction and real estate sector. “A decline in prices may increase loan repayment delays for these banks, resulting in more loans migrating to stage 2”, the research note read. However, this is unlikely to have a significant impact on the banking sector overall, as “falling interest rates provide a cushioning effect and banks have adequate provisions with 60.6% coverage ratio,” BMI said.

Regional tensions also pose a risk: BMI sees rising regional tensions intensifying global trade uncertainty, posing downside risk to the UAE’s banking sector as investors adopt what it described as “a wait-and-see approach,” the agency wrote. Weakness in UAE’s non-oil activity is therefore expected to continue on the back of weakened tourism activity and investor sentiment, which is clearly shown in the decline of the country’s PMI so far this year, BMI noted. May saw the slowest growth in non-oil activity in nearly four years, as global economic uncertainty linked to US tariffs weighed on output.

Still, credit growth is seen remaining steady at 10.1% in 2025, despite a slight easing in monetary policy. “While tighter monetary conditions did not stop credit growth from accelerating in the UAE over the past two years, economic uncertainties will somewhat inhibit credit demand,” the research note read.

What this means for interest rates: BMI anticipates that the Central Bank of the UAE (CBUAE) will cut its policy rate by 50 bps — following in the footsteps of the US Federal Reserve given the AED’s peg to the USD — less than its projections of 100 bps in the last quarter. This will keep interest rates higher than trend for longer, BMI added.

UAE banks are still well positioned compared to GCC peers: The UAE’s banks have “the strongest net external asset position” among GCC countries, giving them the highest resilience to any potential capital outflows resulting from current volatility in the market, ratings agency S&P Global said in April. UAE-listed banks also saw their net income increase by 11.8% (USD 639.6 mn) in 1Q 2025, marking “the biggest absolute growth” among banks in the region, according to Kamco Invest’s banking sector quarterly report (pdf) published in May.

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