“Building stronger financial buffers today ensures banks remain resilient and ready for tomorrow’s uncertainties.” – GCC Banks
GCC Banks: Rising provisions reflect proactive risk management amid an evolving economic and geopolitical landscape
GCC Banks are expected to significantly increase their financial buffers in the coming years, with loan loss provisions projected to exceed $11 billion by 2027, signalling a strategic and forward-looking approach to risk management in a changing economic environment.
According to recent data from S&P Global Market Intelligence, aggregate provisions are forecast to rise from $7.63 billion in 2025 to approximately $10.03 billion in 2026, before reaching around $11.59 billion in 2027.
This upward trend reflects GCC banks’ growing focus on strengthening balance sheets and preparing for potential shifts in credit quality, rather than indicating immediate financial distress. Industry analysts note that such measures are part of a broader effort to maintain stability and resilience amid global and regional uncertainties.
One of the key factors influencing provisioning levels is the exposure of banks—particularly in the UAE—to the real estate sector. With a large proportion of lending tied to income-generating properties, fluctuations in rental income could impact borrowers’ ability to service loans, especially if economic conditions tighten.
Mohamed Damak, Managing Director for Financial Institutions Ratings at S&P Global Ratings, explained that the UAE’s economic structure, characterised by a high expatriate population and reliance on foreign investment in real estate, makes it particularly sensitive to indirect effects of ongoing geopolitical developments.
He noted that a potential decline in rental yields could pose challenges, as many loans are structured around income streams generated by property assets. This dynamic underscores the importance of prudent risk assessment and provisioning strategies.
The report’s data highlights varying levels of real estate exposure among leading UAE banks. Dubai Islamic Bank recorded the highest real estate loan-to-total lending ratio at over 25%, closely followed by First Abu Dhabi Bank, with other institutions such as Mashreqbank and Abu Dhabi Commercial Bank also maintaining notable exposure.
At the same time, analysts point to the risk of an increase in non-performing loans (NPLs), particularly among mid-sized developers and subcontractors. These entities are often more vulnerable to payment delays, rising construction costs, and tighter funding conditions, making them more susceptible to financial strain in uncertain market conditions.
Ranya Gnaba, a financial analyst, highlighted that banks are increasingly adopting a forward-looking provisioning approach, anticipating potential macroeconomic challenges before they materialise.
Despite these risks, the overall outlook for GCC banks remains strong. The sector entered the current period of geopolitical tension from a position of stability, supported by robust profitability, strong capitalisation, and diversified loan portfolios.
S&P Global Ratings noted that these strengths should enable banks to absorb potential shocks and maintain financial stability, even amid deteriorating asset quality. This resilience is further reinforced by improvements in key risk metrics over the past few years.
One such indicator is the Texas ratio, which measures a bank’s ability to handle future loan losses. Among the region’s largest banks, this ratio has improved significantly, reflecting stronger asset quality and enhanced risk management practices. For example, Mashreqbank’s ratio dropped sharply from around 20% in 2021 to below 5% by the end of 2025, while Dubai Islamic Bank also saw a substantial reduction.
These improvements highlight the sector’s ongoing efforts to strengthen financial fundamentals and build resilience against future uncertainties.
The projected increase in loan loss provisions should therefore be viewed as a proactive, strategic move rather than a sign of weakness. By setting aside higher reserves, banks are better positioned to manage potential credit risks, support lending activity, and maintain investor confidence.
Looking ahead, the trajectory of provisioning levels will largely depend on the evolution of global economic conditions, regional geopolitical developments, and trends within key sectors such as real estate. However, with strong capital buffers and disciplined risk management, GCC banks are well-equipped to navigate these challenges.
As the financial landscape continues to evolve, the sector’s ability to balance growth with prudent risk management will remain critical. The anticipated rise in provisions underscores a broader commitment to long-term stability, resilience, and sustainable growth across the GCC banks industry.
