Consumer credit in the UAE is accelerating at a rapid pace, and is expected to carry this momentum over the next two years, according to an S&P Global report. The increase in activity comes amid robust economic activity, with the economy expected to grow 4.1% in 2025-2027, strong employment conditions, and a rapidly increasing population.

By the numbers: Total consumer loans in the country hit AED 540.9 bn as of June, marking a significant 55% increase from 2021-end levels and an average annual growth rate of 13.6%. “This is more than 2.5 times banks’ overall lending growth of 5.1% per year during the same period,” according to the report.

Looking ahead: S&P expects consumer lending in the UAE to continue to grow at 10-12% annually in 2025-2026, with further potential interest rate cuts seen as a tailwind. The agency now expects that the US Federal Reserve will cut rates by two more 25 basis point (bps) before the end of this year and another 50 bps in 2026, prompting the Central Bank of the UAE (CBUAE) to follow suit to maintain the peg between the USD and the AED.

REMEMBER- The US Federal Reserve delivered its first rate cut in nine months earlier this month, cutting rates by 25 bps overnight and bringing the target range down to 4-4.25%.

While elevated consumer loan growth has spurred bank profitability, it triggers some concerns regarding household debt levels and potential risks for banks, especially if the economy experiences a sudden unpredicted slowdown.

S&P Global is not too worried: “Overall, we think the risks for UAE banks are manageable and that the banking sector is well-positioned to absorb any potential increases in consumer loan defaults,” according to the report. Corporate credit still significantly outpaces consumer loans in the UAE, with the latter making up about 27% of total credit as of June-end, according to the report.

Local regulations also support healthy debt risk management: Banking regulation in the UAE already entails some limits and requirements on personal loans, with the maximum debt burden ratio being set at 50% of disposable income. Mortgage lending is also capped, enabling banks to manage any potential risks, according to the report. Al Etihad Credit Bureau’s (AECB) was also mandated by the CBUAE to collect detailed data on borrowers’ repayment behavior, boosting banks' ability to assess and manage risks associated with retail lending, as any defaults or delays are mirrored in borrowers’ credit scores.

REMEMBER-In response to a significant increase in real estate prices over recent years, banks will be required starting January 2026 to allocate an additional 0.5% to their countercyclical buffers within capital ratios. This measure aims to absorb potential imbalances.

Still, risks remain: Any deterioration in employment conditions could weigh heavily on consumer credit quality, given that expatriates represent nearly 90% of the population. “Any slowdown in job creation or potential increase in unemployment could lead to higher delinquencies,” S&P warns.

In response, the government has updated its visa programs to separate some expats from employment terms, allowing residents who become jobless to stay in the country and seek another job.

A sudden sharp dip in oil prices or escalated geopolitical tensions could also elevate credit stress for banks, given their negative impact on sentiment, GDP growth, and local employment.

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