Banking sector in UAE, Qatar, and Kuwait set for stability in 2025: S&P Global

The banking sector in the UAE, Qatar, and Kuwait is expected to remain resilient and stable throughout 2025, driven by solid capital buffers, favorable economic conditions, and supportive government policies, according to a recent analysis by S&P Global. The outlook for the region reflects robust economic growth, strong financial foundations, and a proactive approach to managing potential risks.

UAE’s banking sector: Resilient and well-supported

The banking sector in the UAE is expected to remain robust in 2025, with improved asset quality and lower credit losses. S&P Global forecasts that UAE banks will continue to benefit from strong capital buffers, robust funding profiles, and ongoing government support, ensuring their resilience.

One of the key factors contributing to the stability of UAE banks is the significant increase in deposits over the past few years. As private corporations and retail depositors have focused on saving over spending, banks have seen higher deposit growth, which will continue to support their growth momentum in 2025. Higher interest rates have also provided better yields, encouraging more savings.

S&P Global expects the non-oil economy to remain a key driver of growth in the UAE, supporting cash flow generation from corporations and further strengthening the banking sector's financial position.

Kuwait's banking sector: Improving asset quality

In Kuwait, S&P Global forecasts improvements in asset quality, supported by a stronger economy and lower interest rates. This positive outlook comes despite regional geopolitical tensions, with the banking sector well-positioned to handle these risks. Banks in Kuwait are seeing stronger lending growth, which will help offset the impact of lower interest rates on profitability.

S&P Global anticipates that after a slight contraction in 2024, Kuwait’s GDP will recover with a 3% growth in 2025. This recovery is expected to be fueled by easing OPEC+ oil production restrictions, increased project implementation, and accelerated reforms. The continued economic rebound will further support higher lending growth for Kuwaiti banks.

S&P Global also points to banks in Kuwait operating with solid capital buffers, retaining more than 50% of their profits to support their financial positions. With a stable core customer deposit base and a net external asset position, Kuwaiti banks are well-equipped to weather any challenges.

Qatar's stable banking landscape

In Qatar, the banking sector is set to maintain strong performance in 2025, driven by solid capitalization and abundant liquidity. The rise in liquefied natural gas (LNG) production, alongside growth in the non-hydrocarbon economy, will help propel credit growth in the coming years.

Local funding sources are expected to play a more significant role in supporting credit growth, especially as the public sector gradually reduces its debt. S&P Global also emphasized the strength of government support for Qatar's banking sector, which will help mitigate potential risks, including those from geopolitical tensions in the region.

Despite high geopolitical risks, S&P Global does not foresee a full-scale regional conflict and expects Qatar’s macroeconomic conditions to remain broadly stable, further bolstering the resilience of the banking sector.

The outlook for the banking sectors in Kuwait, Qatar, and the UAE for 2025 is promising, underpinned by strong economic fundamentals, government support, and stable financial systems. As the region navigates both economic and geopolitical challenges, the banking sector is well-equipped to maintain its stability, ensuring continued growth and resilience in the face of external risks.