UAE banks are not struggling to find deposits, but they may be facing higher funding costs as money shifts toward accounts that pay more interest, according to an analyst at etoro.
Nagham Hassan, Market Analyst at etoro, said the key change is where savers keep their money. She pointed to Central Bank of the UAE data showing that balances in savings and fixed-term accounts, which pay interest, have risen sharply, while money in current accounts, which pay little or nothing, has slipped.
“This suggests savers are not pulling money out of banks but moving it to where it earns more,” Hassan said.
Credit growth outpacing deposit growth
Despite the deposit flow, Hassan said lending has been growing faster than funding. Central Bank of the UAE figures cited in the commentary show domestic credit up 15.3% in the year to August, while resident deposits rose 12.5%.
The analyst added that the gap is also visible since June, with domestic credit growing 4.3% compared with 1.5% for resident deposits. She said similar differences have appeared on the balance sheets of banks reporting third-quarter results.
Hassan said companies remain the biggest borrowers, while loans to households, state-linked companies and the government are growing faster. She argued that if banks need more deposits to fund that lending, the deposits they attract can be more expensive.
Liquid assets and wholesale borrowing tighten margins
In the near term, Hassan said part of the funding gap is likely being covered by banks drawing down liquidity built up in earlier years. Another part, she said, is being filled through borrowing in bond and wholesale markets, which also carries costs.
She cited a decline in banks’ liquid-assets ratio to 16.9%, down from 19.8%. Hassan also noted that borrowing from banks abroad is up 46% over the year to August, describing this as a sign that banks may be absorbing much of the cost pressure.
According to the analyst, this helps explain why most large lenders that reported third-quarter results saw their margins narrow. She said lenders with access to international bond markets and stronger credit ratings could be better positioned.
Capital buffers and improving loan quality
Hassan said the sector’s underlying position remains supported. Central Bank of the UAE data cited in the commentary indicate banks hold a “healthy” capital buffer to absorb losses, and the share of problem loans has fallen at the large banks that have reported.
For borrowers, she said credit is still available, but warned that if deposit growth continues to lag lending, banks with higher funding costs could pass more of that pressure on to customers.
What to watch as relief package ends
Hassan said investors in listed UAE bank shares may want to monitor whether deposit growth catches up with lending during the fourth quarter and whether margins stabilise. She also referenced the Central Bank’s “resilience package,” which includes relief for borrowers, noting it ends on 15 January 2027. She described it as a test of how loan quality holds up without that support.
Funding costs, Hassan added, may indicate how broadly the pressure could spread across the sector.
