Banks across the GCC are expected to raise provisions for loan and lease losses over the next two years, reflecting heightened caution amid regional instability, according to Visible Alpha data from S&P Global Market Intelligence. Moreover, aggregate provisions are forecast to rise to $10.03 billion in 2026 and $11.59 billion in 2027, compared to $7.63 billion in 2025.
Real estate exposure remains a key UAE risk
Analysts said UAE lenders face growing risk from real estate exposures as the Middle East conflict continues. Additionally, concerns centre on Dubai’s reliance on foreign capital and a predominantly expatriate population.
“Given the population is 80% to 90% expats and a significant reliance on foreign investment in real estate, the UAE, and notably Dubai, is particularly exposed to the indirect effects of the current conflict,” said Mohamed Damak, managing director for financial institutions ratings at S&P Global Ratings.
Damak said a key downside risk is a potential decline in rents. Moreover, many real estate loans rely on rental income to support repayment, increasing sensitivity to any softening in the market.
Loan concentration varies across major banks
The report said Dubai Islamic Bank had the highest real estate loan-to-total loan ratio at 25.50% at the end of 2025. Additionally, First Abu Dhabi Bank followed at 25.14%, while Mashreqbank and Abu Dhabi Commercial Bank ranked next. Emirates NBD had the lowest ratio among the banks cited, at 10.66%.
Therefore, risk exposure remains uneven across the sector, with some lenders more vulnerable to property market stress than others.
Provisioning likely to rise on weaker developer outlook
The report warned that non-performing loans could increase, particularly among midsize developers and subcontractors. Additionally, these firms remain more exposed to payment delays, higher construction costs, and tightening funding conditions.
“From a risk management perspective, banks are likely to increase forward-looking provisioning, anticipating a potential deterioration in the macroeconomic cycle,” Gnaba stated.
S&P said UAE banks entered the conflict with strong earnings, high capitalisation and more diversified loan books than in previous cycles. Moreover, Damak said these factors should help lenders absorb potential deterioration in asset quality.
“While the potential impact of the war on banks is uncertain and will depend on the duration of the war, banks’ good capitalisation and profitability should help them absorb a significant deterioration in asset quality,” S&P’s Damak said.
Texas ratios show improving loss absorption capacity
The five largest UAE banks have significantly improved their Texas ratios in recent years, reflecting stronger balance sheets and reduced stress indicators. Additionally, Mashreqbank posted the lowest Texas ratio at 4.85% at the end of 2025, down from 20% in 2021.
Dubai Islamic Bank recorded the highest Texas ratio among the five, although it still fell sharply to 12.13% over the same period. As a result, the data suggests major lenders have strengthened their capacity to absorb potential future credit losses.
