UAE GDP Growth to Remain Strong from 2025 to 2027 Supported by Non-Hydrocarbon Activity

As per the S&P Global Rating report, banks in the United Arab Emirates have benefited from a robust local economy which has resulted in better asset quality indicators and less credit losses. The report also predicted that this development would continue beyond 2025.

Steady Economic Growth Forecast:

The US credit rating agency predicted that the UAE’s economy would continue to grow steadily. It stated, “As hydrocarbon production picks up, we anticipate that real GDP growth will remain strong in 2025-2027, further supported by buoyant non-hydrocarbon activity. Business-friendly regulations and a low corporate tax regime, a simplified visa regime, and the success of long-term residency visas will continue to fuel new businesses and increase the population in the country. Despite potential vulnerability to sudden increases in regional geopolitical tensions and significant drops in oil prices, we believe that economic risks will remain manageable, supported by demonstrated resilience during past periods of lower oil prices and heightened geopolitical instability.”

Robust Lending Growth Ahead:

After two years of good success, the agency predicted that the banking sector’s strong earnings would slightly decline in 2025. “The lending book will continue expanding as monetary policy eases. Although the UAE could be affected by regional geopolitical tensions and oil price volatility, we believe risks will remain in check. We expect UAE banks to maintain stable and strong capital buffers, robust funding profiles, and continued government support, which will underpin their resilience,” the report reads.

According to the agency, the UAE’s lending growth will continue to be robust and lending growth will be accelerated by a supportive economic climate and reduced interest rates. The report reads, “We expect strong lending growth to persist in 2025, driven by the ongoing monetary policy easing and supportive economic environment. Banks have seen a notable increase in deposits over the past three years, which will support their strong growth momentum.”

As per the analysis bank asset quality should keep getting better, “We anticipate UAE banks’ non-performing loans and credit losses will remain low because the solid performance of the non-oil sectors and expected rate cuts will help improve underlying asset quality. Over the past two years, banks used their high profitability to set aside provisions for legacy loans and have written them off resulting in stage 3 loans for the 10 top banks (accounting for 85% of banking system) dropping to 4% of gross loans as of September 30th 2024 down from the peak of 6.1% in 2021. In addition, the improved economic environment has meant higher recoveries of written-off loans, contributing to lower net credit losses.”

The agency added that UAE banks profitability improved with monetary tightening as higher interest rates helped expand margins, “We now expect profitability to follow amid declining interest rates. We expect the cost of risk to remain low, and therefore UAE banks’ profitability should remain high, albeit lower than the peak of 2023.”

The strong non-oil economy in the United Arab Emirates has improved the asset quality indicators of the banking system and decreased credit losses which is why it sees a favorable trend in the country’s economic risk.