UAE and KSA Banking Pulse: Lending Surges 5.8% as Regional Banks Build Liquidity Buffers

Quick Summary

The A&M Banking Pulse for Q1 2026 reveals a robust period for Middle Eastern finance, with UAE lending growing 5.8% and KSA deposits rising 3.9%. While profitability remains resilient, regional geopolitical tensions are emerging as a critical watchpoint for credit demand and provisioning in the coming months.

How is the UAE Banking Sector Performing in 2026?

The UAE banking sector demonstrated accelerated lending growth of 5.8% in the first quarter, significantly outperforming deposit mobilization which sat at 3.8%. This surge indicates high credit demand resilience despite shifting global interest rates. Key performance indicators show:

• Operating income grew by 7.7% to reach AED 44.4 billion.
• Asset quality improved with NPL ratios falling to a lean 2.3%.
• Cost-to-income ratios sharpened to 27.3% due to AI-led productivity.

Banks like First Abu Dhabi Bank and Emirates NBD are successfully leveraging technology-led productivity gains to offset a marginal decline in Net Interest Margins (NIM), which eased to 2.37% following recent rate cuts.

What is Driving the KSA Banking Sector's Resilience?

In Saudi Arabia, the A&M Banking Pulse highlights a strategic shift toward liquidity, with deposit growth outpacing credit expansion at 3.9% compared to 1.6% for loans. This trend has helped banks build substantial liquidity buffers as they navigate a lower-rate environment. The sector maintains a stable NPL ratio of just 0.9%, reflecting exceptionally strong asset quality across the Kingdom's top ten lenders.

While non-interest income saw a 13.2% decline, the Vision 2030-linked sectors continue to provide a floor for financing growth. Banks are increasingly focusing on funding mix optimization to maintain a steady NIM of 2.84%.

What Risks Face Middle Eastern Banks in Q2 2026?

The primary concern for the remainder of the year is how regional geopolitical uncertainty will impact impairment levels and deposit stability. Analysts are closely monitoring potential deposit outflows and the effectiveness of CBUAE support measures. Furthermore, the IMF's downward revision of FY 2026 GDP growth suggests a cooling effect on economic activity that could pressure future revenue streams.

FF NEWS TAKE:

The latest A&M Banking Pulse proves that Gulf banks are currently in a position of strength, but the "goldilocks" period of high rates and low risk is ending. The 5.8% lending jump in the UAE is impressive, yet the KSA's focus on liquidity suggests a more cautious defensive posture. We believe the real test will be agentic AI adoption; banks that fail to convert these productivity gains into lower cost-to-income ratios will struggle as margins inevitably compress in H2 2026.