Banks in the UAE are projected to maintain financial resilience even as the real estate sector moderates over the next 12 to 18 months, following several years of robust expansion, according to Moody’s Ratings.
The report highlights that regulatory limits on property exposure, solid capital positions, and strong liquidity levels are expected to shield lenders from significant asset quality deterioration in the event of a market correction.
Although UAE banks maintain exposure to real estate through corporate lending and mortgage portfolios, regulatory safeguards have effectively mitigated potential risks. In 2022, the Central Bank of the UAE introduced a cap limiting exposure to construction and real estate to 30 percent of credit risk-weighted assets. As of the first half of 2025, overall exposure stood at approximately 18.3 percent — well below the regulatory ceiling — leaving room for further sector financing if needed.
Several additional factors have contributed to a gradual decline in banks’ real estate loan books, including strong system-wide liquidity, early corporate debt repayments, and a prolonged period of elevated interest rates.
Lending to the real estate and construction sector contracted by 6 percent in 2022, 4 percent in 2023, and 8 percent in 2024, before rebounding by 4 percent year-on-year as of September 2025, largely supported by easing interest rates. The sector now represents 12 percent of total loans, down significantly from 19 percent in December 2021.
At the same time, consumer lending expanded, with personal loans for consumption rising approximately 18 percent year-on-year as of December 2024 and September 2025. These loans now account for 23 percent of total gross loans and include mortgages, indicating continued exposure to the property market. Mortgage volumes have exceeded pre-pandemic levels amid strong real estate activity, although a majority of property transactions continue to be completed in cash rather than through bank financing.
Meanwhile, property developers have diversified their funding strategies, reducing reliance on project-specific secured bank loans. Since 2023, developers have issued nearly $12 billion in sukuk, bonds, and hybrid debt instruments, with average maturities of approximately $2 billion annually between 2027 and 2030.
Stronger Capital Buffers Support Stability
With monetary policy gradually easing, banks may experience additional pressure on net interest margins, as asset yields are expected to decline faster than funding costs. However, healthy non-interest income streams and disciplined cost management should help offset some of the impact.
Provisioning expenses are likely to increase following a period of strong recoveries, which may moderate returns on assets from the record 1.9 percent level achieved between December 2023 and June 2025. Despite this, overall profitability is expected to remain solid.
Since the global financial crisis of 2008–2009, UAE banks have significantly reinforced their capital buffers and liquidity positions. Core banking liquidity reached 23 percent of total assets in June 2025. The non-performing loan ratio has also improved markedly, falling to a record low of 2.9 percent as of June 2025, supported by recoveries, write-offs, and stronger risk management practices.
Provision coverage levels remain comfortably above 100 percent, providing an additional safeguard should the real estate market experience further softening.
