UAE banks unshaken by potential Russia-Ukraine ceasefire

A potential ceasefire between Russia and Ukraine would have minimal impact on UAE banks, as they have ample liquidity to handle possible Russian deposit outflows, according to a report by S&P Global Ratings on Tuesday.

The agency noted that diplomatic efforts toward a ceasefire are gaining traction but emphasized “a high degree of uncertainty about the extent, outcome, and consequences” of any resolution to the conflict.

UAE banks’ resilience amid ceasefire

S&P stated that “the potential implications of a hypothetical ceasefire scenario for the UAE banking system are limited,” identifying key risks such as deposit outflows, a potential softening in residential real estate, and lower oil prices.

The report highlighted that UAE banks experienced deposit growth above normalized rates in 2023-2024, with some flows likely linked to the Russia-Ukraine conflict. However, as of November 30, 2024, banks’ liquid assets were three times the total deposit inflows recorded between 2022 and November 2024.

“UAE banks have more than enough liquidity to deal with potential outflows,” S&P stated. The agency also noted that even if most Russian nationals returned home, some might maintain financial ties to the UAE due to its “flexible and supportive economic environment” and “low tax regime.”

Impact on real estate and economic growth

The report also addressed concerns regarding the UAE’s real estate sector, where Russians have been among the top buyers and renters in Dubai over the past three years.

Construction and real estate loans accounted for 14.4% of UAE banks’ lending exposures as of November 2024. However, S&P does not foresee “a significant disruption to the residential real estate sector, even if we were to see significant property divestments by Russians, given continuous strong demand and population growth.”

Looking ahead, the agency expects the UAE’s real GDP growth to accelerate, averaging close to 4.4% between 2025 and 2027, following a 3.4% expansion in 2024. This projection assumes a gradual easing of OPEC+ oil production cuts and sustained non-oil sector growth.

S&P forecasts oil prices to remain around $70 per barrel over the next few years but acknowledged that potential sanctions relief could impact price stability.

The agency also expects UAE banks to “continue to display strong asset quality indicators” and noted that recent adjustments to provisioning rules by the UAE central bank will further boost nonperforming loan coverage ratios, which were near 100% in 2024.