CBUAE’s wartime deferral shield starts coming off UAE bank balance sheets this month

The AED 13.5 bn in loan repayments the Central Bank of the UAE (CBUAE) let banks defer at the start of the regional conflict starts coming due this month and next — the first read on UAE bank asset quality that regulators haven’t cushioned. The deferrals, granted under the central bank’s March resilience package without triggering a default classification, cover more than 135k customers and more than doubled in size between May and July. The six-month clock on the earliest cohort runs out now.

Why it matters: Every set of UAE bank results since the war began has been reported with that regulatory support firmly in place. Most recently, the sector’s ten largest listed banks posted AED 24.7 bn in net income for 2Q 2026, up 2.7% q-o-q, according to Alvarez & Marsal’s (A&M) latest UAE Banking Pulse report (pdf). Impairment charges fell 35.3% q-o-q in 2Q, more than offsetting a 1.2% q-o-q dip in operating income. Net interest margins compressed to 2.34% from 2.37% as funding costs outpaced yields, while trading-sensitive income fell sharply — leading A&M to describe the quarter’s return-on-equity gains as “primarily provision-led.”

A&M’s Sam Gidoomal, who advises Gulf banks on distressed and non-performing loans, isn’t calling this a credit-quality problem yet. “I wouldn’t say loan book quality is deteriorating,” he told our MENA+ desk. “The structural risk sits in the medium term, particularly in credit quality for businesses reliant on global supply chains, imported inputs, or foreign capital,” he says, adding that “pressure tends to build gradually and becomes clearer as support measures unwind.”

The numbers back that up: The aggregate non-performing loan (NPL) ratio stayed flat at a historic low of 2.3%. Stage 3 (impaired) loans grew just 0.7% q-o-q — slower than the book overall, so their share slipped to 2.5% from 2.6%. Cost of risk fell to 0.35% from 0.56%, a 21-bps improvement, largely on recoveries led by Mashreq, Dubai Islamic Bank, and Emirates NBD.

Cost of risk is not too accurate a signal, though: Ranya Gnaba, an equity banking analyst at AlphaMena, thinks that the cost of risk figure “has been artificially suppressed so far, largely thanks to significant impairment recoveries and collections” — a tailwind she expects to fade if the conflict drags on. Her sharpest flag is Emirates NBD: a very low reported cost of risk paired with a very high return on equity, which she reads as the widest gap in her coverage between what’s booked now and what normalized provisioning would eventually cost.

SOUND SMART- Banks sort loans into three risk “stages” under an accounting rule called IFRS 9: Stage 1 is performing normally; Stage 2 means risk has risen even though the borrower is still paying; Stage 3 means the loan is actually impaired. Restructuring a loan — deferring its payments, for instance — is normally what triggers a bank to bump it out of Stage 1. The UAE’s wartime deferrals let banks skip that step. The 2020 pandemic package went further and froze banks’ obligation to ever revisit that classification; this one didn’t. So as the deferrals expire now, banks have to actually go back and reclassify each loan.

Bloomberg Intelligence’s Edmond Christou puts the lag at six to 12 months and flags Dubai Islamic Bank, National Bank of Fujairah, Commercial Bank International, and Commercial Bank of Dubai as carrying heavier real estate and services exposure on thinner buffers — against Emirates NBD, FAB, and ADCB, which cut that exposure earlier and provisioned harder. Working in the sector’s favor: Gulf banks have spent years cutting tourism, hospitality, services, and real-estate exposure from the mid-to-high 20s as a share of the balance sheet down to roughly 11-12%, some closer to 10%.