GCC banks are projected to substantially increase provisions for loan and lease losses over the next two financial years citing data from Visible Alpha: part of S&P Global Market Intelligence.
Risk Heightens for GCC Banks
Provisions are expected to reach $10.03B in 2026 and $11.59B in 2027: a notable rise from $7.63B in 2025. This trend underscores growing concerns about the potential impact of ongoing regional conflicts, particularly on real estate exposures in the UAE, as banks put aside credit in case of lender defaults.
The prolonged conflict in the Middle East is heightening risks for UAE banks, where real estate investments are heavily reliant on foreign capital. Up to 90% of the UAE population derives from foreign expatriates: many who have borrowed capital from UAE banks to fund capital investments in the country.
The anticipated decline in rental incomes, crucial for repaying loans on income-generating properties, poses a substantial threat to the stability of UAE banks.
Real Estate Loans High
As of the end of 2025, Dubai Islamic Bank recorded the highest real estate loan-to-total loan ratio at 25.50%, closely followed by First Abu Dhabi Bank at 25.14%.
A potential increase in non-performing loans, especially among mid-sized developers and subcontractors facing delays and rising costs, has emerged as a significant challenge for financial institutions.
Bank Strength Pre-Crisis
Despite these concerns, S&P notes that UAE banks entered the current conflict from a position of financial strength, characterised by solid earnings and robust capitalisation.
Enhanced diversification of loan portfolios compared to previous cycles has also improved resilience.
Key metrics, including Texas ratios, indicating banks’ capacity to absorb future losses. UAE banks, such as Mashreq, reported a ratio of 4.85% at the end of 2025 which is down from 20% in 2021: a significant improvement on risk for the UAE bank.
Mashreq had the lowest Texas ratio out of the leading 5 UAE banks.
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