UAE banks tighten as deposits fail to keep pace

UAE bank lending expanded by 7 per cent in the first half of 2026, while deposits from non-government customers grew by only 4 per cent, according to AGBI. That gap is pushing loan-to-deposit ratios higher across the banking sector, a measure of how much of a bank's lending is funded by customer savings rather than other sources.

AGBI reports that total non-government deposits stood at AED2.95 trillion ($803 billion) in June, having barely moved since February. Within that figure, the balance is shifting: fixed-term deposits, which lock money away for an agreed period, rose nearly 10 per cent this year to AED1.28 trillion, while instant-access demand deposits fell 1.8 per cent to AED1.24 trillion.

Competition for savers' cash is most visible among mid-sized banks including Mashreq, Rakbank and National Bank of Fujairah, which AGBI says have been offering time-deposit rates above 6 per cent — roughly 2 percentage points above the interbank lending rate. That has drawn money out of low- or no-interest current accounts and into higher-yielding term products.

This shift has been compounded by softer liquidity linked to lower energy export and tourism revenue. Analysts at Jefferies International cited by AGBI note that banks' cash balances held at the central bank have dropped to 11 per cent of total assets, down from 13 per cent before the Iran conflict, a sign of tighter system-wide liquidity.

Jefferies forecasts the sector's loan-to-deposit ratio will climb to 83 per cent this year from 79 per cent in 2025, and reach 87 per cent by 2028, according to AGBI. The bank also projects the industry's net interest margin — the gap between what banks earn on loans and pay on deposits — will fall 20 basis points in 2026 to 2.6 per cent, its lowest level since at least 2023, with further modest declines expected in 2027 and 2028.

AGBI reports that the three-month interbank lending rate has risen 50 basis points since the end of February, reflecting both domestic liquidity strains and higher US bond yields. Jon Peace of UBS told AGBI that banks continue to prize low-cost current and savings account deposits even as they compete harder for term deposits, balancing funding cost against regulatory liquidity requirements.

Performance is diverging between institutions, AGBI notes. First Abu Dhabi Bank has reported both faster loan growth and improving margins, while Abu Dhabi Islamic Bank's expanding loan book has been partly offset by margin pressure. Jefferies suggested FAB is comparatively well placed to absorb further funding cost increases given its stronger loan-to-deposit position and credit rating.

For expatriates and businesses in the UAE managing balances in dirhams and other currencies, shifts in local deposit rates and bank funding costs can feed through to the pricing of everyday banking services, including international transfers and currency conversion. Tighter bank liquidity does not automatically raise transfer costs, but it is one of several factors, alongside exchange rate movements and provider margins, that can influence what it costs to move money between the UAE, the UK and elsewhere.

Anyone converting savings, business revenue or property proceeds across currencies during a period of shifting interest rates may find it useful to compare rates and fees across different transfer providers, since pricing can vary independently of the underlying market conditions described above.