S&P Global Predicts UAE Banking Sector Growth in 2025, Despite Geopolitical Challenges

2024 proved a positive year for banks across the United Arab Emirates (UAE), with the overall banking sector enjoying growth. Now, fresh reports suggest that this growth is set to continue in the coming year. 

In its new report ‘United Arab Emirates Banking Sector 2025 Outlook: Balancing Growth And Risks Amid Economic Expansion‘, S&P Global Ratings predicts that the signs are good for the UAE in the coming 12 months. Strong domestic economic conditions appear to have led to improved asset quality metrics and lower credit losses, according to analysis of the last year.

S&P Global revealed that it anticipates this trend to continue in the coming year, despite regional geopolitical tensions and oil price volatility.

“Although the UAE could be affected by regional geopolitical tensions and oil price volatility, we believe risks will remain in check,” explained Puneet Tuli, ratings analyst at S&P Global. “We expect UAE banks to maintain stable and strong capital buffers, robust funding profiles, and continued government support, which will underpin their resilience.”

Following strong performance in the past two years, S&P also expects the sector’s robust earnings to dip slightly in 2025 and the lending book to continue expanding as monetary policy eases. It says that business-friendly regulations, a low corporate tax regime, a simplified visa regime, and the success of long-term residency visas should continue to fuel new businesses, as well as increase the population in the country.

Outlining industry trends

Over the past few years, S&P has seen an emergence of neobanks and fintechs, as well as an increase in traditional banks’ digital offerings in the UAE. Meanwhile, recent approval for the stablecoin registration framework plan has paved the way for UAE-dirham-backed stablecoin issuance in the country.

Amidst this landscape, the credit rating agency predicts that neobanks and fintechs will complement, not replace, traditional banks as the UAE’s central bank continues to maintain the stability of the traditional banking system and encourage banks to strengthen their digitalisation efforts.

It also explored the energy transition risk, finding that this is likely to have a limited impact on UAE-based banks’ creditworthiness. S&P estimates that local banks’ direct lending to sectors exposed to energy transition is manageable – about 11 per cent of total lending on average at year-end 2023–despite high concentration in hydrocarbons (about 25 per cent of the UAE’s nominal GDP).

In addition, ongoing economic diversification, high economic wealth, sizable external liquid assets, and increasing investment in renewable capacity should also help to mitigate carbon transition risks for the economy and the banking system.

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