UAE banks can withstand Iran war stresses, says governor

• UAE banks have ‘strong liquidity’
• Gulf banks are ‘sound’, Fitch notes
• Shares in stocks have tumbled

The banking sector in the UAE and wider Gulf is financially sound and can withstand any strains caused by the Middle East conflict, according to a senior regulatory official in the emirates and a major credit ratings agency.

Yet the comments by Fitch Ratings and the UAE central bank governor have done little to calm investor nerves. UAE stocks tumbled last week as part of a wider stock market sell-off.

Shares in Emirates NBD, Dubai’s biggest bank, have fallen 15 percent, while Dubai Islamic Bank – the country’s top Islamic lender – is down 10 percent over the same period. First Abu Dhabi Bank, the UAE’s largest, has slid 8 percent.

“The UAE’s banking systems, payment systems and national financial infrastructure continue to operate with full efficiency and stability,” central bank governor Khaled Mohamed Balama said in a statement on Thursday.

Balama said the country’s financial sector had “very strong” levels of capital adequacy and liquidity. Domestic lenders’ aggregate capital adequacy ratio was 16.6 percent at the end of 2025, while the liquidity coverage ratio was 150 percent, according to the central bank.

A liquidity coverage ratio above 100 percent shows a bank possesses sufficient assets to cover 30 days of heavy withdrawals and funding pressure.

UAE domestic banks’ assets totalled AED4.76 trillion ($1.3 trillion) at the end of December, up 18 percent versus a year earlier, according to the central bank.

The banks’ combined lending amounted to AED2.38 trillion, of which AED509 billion was to government and quasi-government institutions, AED1.38 trillion to the private sector and AED534 billion to individuals.

“Gulf banking systems face few immediate credit risks from the regional conflict,” Fitch Ratings said in a note last week.

The region’s banks “generally have sound financial metrics, and ample liquidity and capital buffers”, the note said.

Should the war, which pits the United States and Israel against Iran, remain “fairly short” with energy export infrastructure “not materially damaged”, the effect on Gulf economic growth would be temporary, Fitch wrote.

The ratings agency said Gulf banks’ capital ratios “are generally solid”, pointing out that “funding and liquidity are a rating strength for banks in most of the Gulf, except in Qatar and, to a lesser extent, in Saudi Arabia”.

Yet the conflict may make it more difficult for Gulf lenders to issue debt in foreign capital markets, Fitch warned.

“This could particularly increase Saudi banks’ reliance on more expensive domestic markets, raising funding costs or leading to a slightly sharper slowing of loan growth than we had previously expected,” Fitch said.

The agency also warned that there could be “more serious” effects on banks’ financial metrics “if the conflict causes longer-term reputational damage to parts of the region that have positioned themselves as havens for international businesses and individuals”.