In February 2026, Moody's upgraded its outlook for the UAE banking sector from stable to positive, citing resilient non-oil economic momentum, structural reform progress and improving credit conditions.
GlobalData Retail Banking Regional Report
It was a vote of confidence in a system that, according to GlobalData’s Retail Banking Regional Report, ended 2024 among the most profitable globally. A ratings upgrade and an earnings challenge can coexist, and right now they do.
GCC banks built that profitability on elevated interest rates and substantial non-interest-bearing deposits. In Saudi Arabia, an efficiency drive delivered an average eight percentage point improvement in efficiency since 2022, according to GlobalData. The rate environment that enabled all of it is now working in reverse.
The lag problem
The UAE's exposure is structural. With the dirham pegged to the US dollar, domestic monetary policy follows the Federal Reserve directly, meaning rate cuts transmit into asset yields almost immediately while deposit costs adjust more slowly.
"The single biggest pressure point is the speed of margin normalisation relative to banks' ability to reprice liabilities," says Joanne Kumire, analyst at GlobalData. "In the UAE particularly, rate cuts transmit directly into asset yields, while deposit costs do not always adjust as quickly. That creates a lag effect where net interest income compresses faster than operating costs can be taken out."
Saudi Arabia is not immune, but it enters the easing cycle with more tools. Margins in the kingdom were up slightly during the high-rate period of 2023–24 but remain well below pre-pandemic levels, a reminder that volume and efficiency can defend earnings without eliminating rate pressure. Saudi banks have more room to absorb it.
Moody's maintains a stable outlook, expecting banks to partly offset lower yields by widening loan spreads as credit demand grows, with non-oil GDP forecast at 4.2% in 2026 and credit growth running at around 8%.
Underpinning that is a mortgage market that, according to GlobalData, grew at a 21% compound annual rate from 2020, the fastest globally, driven by the Sakani programme and the Saudi Real Estate Development Fund. Saudi banks can, to a meaningful degree, replace rate income with volume. The UAE's position is less straightforward.
The Gulf paradox
Emirates NBD is approaching a 30% market share of all UAE retail deposits, more than the next two competitors combined, according to GlobalData analysis. That kind of concentration implies commanding customer relationships. The data on what those customers actually do with their money tells a different story.
UAE customers have the region’s highest net likelihood (78%) of turning to their primary bank for help achieving their financial goals, according to GlobalData’s 2025 Financial Services Consumer Survey. Yet 25% of savers and 42% of investors do not hold those products with their main bank, and one in five customers holds only one or two products with their primary provider.
Banks own the relationship but not the revenue.
Kumire frames the gap as structural rather than reputational. "The trust gap in the UAE is not about brand confidence. It is about proposition and timing. Customers trust their primary bank, but they often look elsewhere for investments and savings because specialist platforms feel more competitive, more transparent, or more digitally intuitive." The fix, she argues, is not a sales push but "embedding savings and investment journeys natively inside the core banking app, with personalised prompts and simpler pricing that make keeping money within the primary relationship the path of least resistance."
Saudi Arabia has the same problem in a different form. Savings account penetration is 57%, and only 61% of customers have their main savings account with their main banking provider, indicating that lenders, despite stronger volume growth, have yet to convert the relationship into deeper product ownership, according to GlobalData.
Where the technology spend goes
Only 49% of UAE customers use their banking app at least weekly in their first year, according to GlobalData, versus a regional average of 69%. Saudi Arabia's figure is a comparable 54%. Both markets sit well below Nigeria and Türkiye, where new customer app engagement runs above 80% in the first year. Celent’s Bank ICT Budget 2025 Dimensions data shows UAE banks also allocate just 2% of revenue to technology, below Saudi Arabia's 3%-plus and well below South Africa's near-4%.
The instinct is to treat this as a distribution problem requiring more features and more spend. Kumire argues the bigger issue is different. "The capability gap that matters most is data-led engagement, not pure distribution. Gulf banks already have scale and capital strength. What they lack is consistent, personalised activation of their existing customer base." The metrics she says executives should track: product-per-customer ratios and digital conversion from intent to funded product. "If those metrics are not rising as margins fall, the technology spend is not translating into earnings resilience."
The cost structure gives that warning urgency. GlobalData estimates that personnel account for 55% of regional operating expenses, the highest staff cost ratio across emerging markets. This reflects a genuine and persistent customer preference for human channels that cannot simply be redirected to an app. UAE and Saudi clients consistently favour phone, messaging and in-person contact even for routine tasks, with branch proximity among the top reasons for switching provider in both markets. The opportunity is not to eliminate that preference but to use data and AI to ensure that financial decisions on savings, investments, lending increasingly happen within the primary banking relationship rather than outside it.
Government support is a floor, not a strategy
Moody's assumes a very high likelihood of government support for Gulf banks, a structural backstop reflected in the ratings uplift both systems carry. It is a genuine credit strength. It is also one reason Gulf banks have sometimes been slower to confront operating model questions that less-protected systems face more urgently.
Rate cuts do not threaten Gulf bank solvency. They do strip away the conditions that allowed strong profits to coexist with an unresolved cross-selling gap, a digital engagement shortfall and a cost base oriented around human servicing. It reflects resilience, not immunity.
The banks that close the distance between customer trust and product ownership and build the data infrastructure to do it at scale are best placed to defend the profitability. Government backing can support stability, but it will not protect returns.
"Gulf banks face an earnings test as rates fall" was originally created and published by Retail Banker International, a GlobalData owned brand.
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