The Central Bank of the UAE’s five-pillar Financial Institutional Resilience Package, announced late on Tuesday, has given investors a jolt of confidence in the domestic banking sector as it navigates this period of intense regional volatility.

Markets closed in the green for the second consecutive day on Wednesday, after having seen outflows since opening after the regional war began, pulling the DFM near bear market territory. The DFM rose 0.8%, led by financial institutions’ gains, with Ajman Bank rising 5.3% and Mashreq gaining 4.8%.

The move aligns with what most analysts expected from the government. “We consider the UAE as highly supportive to their banking system and expect extraordinary support to be forthcoming should the need arise, so we incorporate notches of support in our bank ratings in the UAE,” S&P Global Ratings’ managing director for financial institution ratings Mohamed Damak tells us.

REMEMBER- The program allows banks to tap into 30% of their mandatory cash reserves and access new AED and USD term facilities, and also gives them the green light to postpone the classification of loans for stressed individual and corporate borrowers, a move reminiscent of the pandemic-era support measures.

The buffer relief comes as UAE banks already “operate at healthy capital buffers,” CI Capital said in a research note seen by EnterpriseAM. The CBUAE statement also mentioned foreign exchange reserves of more than AED 1 tn and a monetary base cover ratio of 119%.

What to watch, according to pundits: Some lenders might be more exposed than others due to exposure to sectors that might see be negatively impacted by a prolonged disruption due to the war, like real estate. Real estate accounts for roughly 16% of First Abu Dhabi Bank’s loanbook for example, though only 20% of that is tied to Dubai, CI Capital said.

!_SubHead_! The regional picture for the banking sector

Despite the strong capital buffers that GCC banks have, a prolonged war will trigger “some deterioration in financial performance in 2026,” S&P Global warned in a report. While business continuity plans remain intact, the resilience narrative faces a “sterner test” if energy volatility and supply chain disruptions harden into a long-term drag.

S&P models a potential USD 307 bn exodus of domestic deposits across the GCC. While banks sit on USD 312 bn in cash and central bank reserves, a systemic run of that size would likely force the liquidation of investment portfolios. The good news is after a 20% haircut on those assets, the region’s lenders would still have a USD 630 bn liquidity moat to deploy, suggesting even a worst-case scenario is manageable for most.

The exceptions: Most GCC banking systems can absorb external outflows without state help, but Bahrain and Qatar remain the most vulnerable to funding flight due to their heightened external debt, the report explains.

What to watch: The conflict’s hit to balance sheets won’t be immediate, but S&P warns of a performance dip in 2026 as stress in logistics, tourism, and real estate trickles through. While the region’s top 45 lenders boast a solid 17.1% Tier 1 capital ratio, a “high-stress” scenario— where NPLs spike to 7% of total loans — could wipe out USD 37 bn in capital.

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