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UAE Islamic banks hold steady at 18% market share as S&P lauds GCC resilience
S&P Global Ratings says UAE’s Islamic lenders have kept their asset share stable for five years, with a new 2031 strategy set to fuel further growth across the Gulf’s Shariah-compliant banking sector
- PUBLISHED: Tue 21 Jul 2026, 7:00 AM
The UAE’s Islamic banking industry has proven remarkably steady over the past half-decade, holding its share of the country’s total banking assets at roughly 18 per cent, according to a new report from S&P Global Ratings that assess the health of Shariah-compliant lenders across the Gulf Cooperation Council.
The ratings agency credits the UAE segment’s stability to the presence of several large, well-established Islamic banks with strong customer franchises. Looking ahead, S&P expects the country’s 2031 strategy for Islamic banking to give the industry a further push, reinforcing the UAE’s position as one of the region’s most mature Islamic finance markets.
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Across the GCC, S&P says Islamic banks’ robust capital cushions and stable funding bases should help the sector absorb a mild deterioration in asset quality and a slowdown in growth, even as geopolitical tensions weigh on the region.
However, S&P flags a high degree of uncertainty around the duration and severity of the ongoing Middle East war and its potential knock-on effects on commodity prices, supply chains, regional economies and credit conditions.
Saudi Arabia leads by scale
Regionally, Saudi Arabia remains the leader in Islamic banking, with Shariah-compliant assets making up about 76 per cent of the kingdom’s total banking assets at the end of 2025 — among the highest concentrations anywhere in the world. S&P notes the market is shifting from a retail-led model toward greater corporate, project-finance and SME lending, driven by Vision 2030 mega-projects, an expanding sukuk market, and growth in Islamic fintech and sustainable finance.
Kuwait, Oman and Bahrain also expanding
In Kuwait, Islamic banks account for roughly half of total system assets, backed by a strong retail deposit base and solid capitalization; growth is expected to track the broader banking sector. In Oman, Islamic banking has climbed to about 19 per cent of total sector assets as of March 31, 2026, up roughly 200 basis points over two years, with Bank Nizwa and Alizz Islamic Bank together holding more than a third of that segment. Bahrain’s Islamic banks — including wholesale lenders — represent close to 30 per cent of the industry and about 70 per cent of retail banking assets, a share S&P attributes partly to a recent wave of consolidation that has boosted efficiency.
Qatar faces tighter conditions
Qatar is the outlier on growth, with S&P expecting Islamic banks’ share of the market to hold in a 25 per cent-27 per cent range over the next two to three years amid limited expansion opportunities. Asset quality there is projected to soften in 2026 because of the regional war, though strong capital levels and shareholder support — along with limited reliance on external funding — should cushion the impact, despite continued balance-sheet concentration in the public sector.
Outlook: cautious resilience
Taken together, the six country reports point to a sector that is well-placed to weather near-term turbulence rather than one immune to it. Solid capital buffers, sticky retail funding and, in several markets, strong government backing give Islamic banks room to absorb a mild softening in asset quality and slower credit growth through 2026. But S&P’s repeated emphasis on the unpredictability of the Middle East war — and its potential spillover into commodity prices, supply chains and regional credit conditions — underscores that this resilience is conditional rather than guaranteed.
For the UAE specifically, a steady 18 per cent asset share and the incoming 2031 strategy suggest the segment is set to expand gradually rather than dramatically, with growth more likely to come from deepening product sophistication, fintech adoption and sukuk issuance than from rapid market-share gains. The agency has signalled it will revisit its guidance as the regional situation evolves, meaning the next update could recalibrate this picture in either direction.
Associate Editor Somshankar Bandyopadhyay brings more than three decades of experience to the KT newsroom. Currently, he manages the news production of the business section, ensuring that the top economic and business news of the day reaches its readers.