Gulf banks face an earnings test as rates fall

In February 2026, Moody's upgraded its outlook for the UAE banking assemblage from unchangeable to positive, citing resilient non-oil economical momentum, structural betterment advancement and improving recognition conditions.

It was a ballot of assurance successful a strategy that, according to GlobalData’s Retail Banking Regional Report, ended 2024 among the astir profitable globally. A ratings upgrade and an net situation tin coexist, and close present they do.

GCC banks built that profitability connected elevated involvement rates and important non-interest-bearing deposits. In Saudi Arabia, an ratio thrust delivered an mean 8 percent constituent betterment successful ratio since 2022, according to GlobalData. The complaint situation that enabled each of it is present moving successful reverse.

The UAE's vulnerability is structural. With the dirham pegged to the US dollar, home monetary argumentation follows the Federal Reserve directly, meaning complaint cuts transmit into plus yields astir instantly portion deposit costs set much slowly.

"The azygous biggest unit constituent is the velocity of borderline normalisation comparative to banks' quality to reprice liabilities," says Joanne Kumire, expert astatine GlobalData. "In the UAE particularly, complaint cuts transmit straight into plus yields, portion deposit costs bash not ever set arsenic quickly. That creates a lag effect wherever nett involvement income compresses faster than operating costs tin beryllium taken out."

Saudi Arabia is not immune, but it enters the easing rhythm with much tools. Margins successful the kingdom were up somewhat during the high-rate play of 2023–24 but stay good beneath pre-pandemic levels, a reminder that measurement and ratio tin support net without eliminating complaint pressure. Saudi banks person much country to sorb it.

Moody's maintains a unchangeable outlook, expecting banks to partially offset little yields by widening indebtedness spreads arsenic recognition request grows, with non-oil GDP forecast astatine 4.2% successful 2026 and recognition maturation moving astatine astir 8%.

Underpinning that is simply a owe marketplace that, according to GlobalData, grew astatine a 21% compound yearly complaint from 2020, the fastest globally, driven by the Sakani programme and the Saudi Real Estate Development Fund. Saudi banks can, to a meaningful degree, regenerate complaint income with volume. The UAE's presumption is little straightforward.

Emirates NBD is approaching a 30% marketplace stock of each UAE retail deposits, much than the adjacent 2 competitors combined, according to GlobalData analysis. That benignant of attraction implies commanding lawsuit relationships. The information connected what those customers really bash with their wealth tells a antithetic story.