The United Arab Emirates’ Islamic banking sector has maintained a stable presence within the country’s financial landscape over the past five years, consistently representing about 18 percent of total banking assets, according to a recent assessment by S&P Global Ratings. The report highlights the sector’s resilience as being supported by several large, well-established Islamic banks with strong customer bases, which have helped sustain confidence amid regional economic fluctuations.

Looking ahead, the UAE’s planned 2031 Islamic banking strategy is expected to provide additional momentum to the industry, reinforcing the nation’s position as one of the Gulf Cooperation Council’s (GCC) most mature markets for Shariah-compliant finance. S&P projects that growth in the UAE market will likely be gradual and driven by enhanced product offerings, increased adoption of financial technology, and expanded sukuk issuance, rather than rapid gains in market share.

Within the broader GCC region, Saudi Arabia leads the Islamic banking sector by scale, with Shariah-compliant assets forecasted to represent approximately 76 percent of the kingdom’s total banking assets by the end of 2025. This reflects one of the highest concentrations of Islamic finance globally. The Saudi market is evolving from predominantly retail-focused lending to greater emphasis on corporate, project, and small-to-medium enterprise (SME) financing. This shift is propelled by the Vision 2030 development plans, growth in the sukuk market, and advancements in Islamic fintech and sustainable finance initiatives.

Other GCC members, including Kuwait, Oman, and Bahrain, are also experiencing growth in Islamic banking. In Kuwait, Islamic banks hold about half of total system assets, supported by a solid retail deposit base and strong capital levels, with growth expected to mirror the broader banking sector. Oman’s Islamic banking share rose to nearly 19 percent of total sector assets as of March 2026, an increase of roughly 200 basis points over two years, with Bank Nizwa and Alizz Islamic Bank accounting for more than a third of that segment. Bahrain’s Islamic banks, which include wholesale lenders, constitute approximately 30 percent of the industry and around 70 percent of retail banking assets. This significant share is partly the result of recent consolidation efforts that have enhanced operational efficiency.

Qatar presents a contrasting picture, with Islamic banks expected to maintain a relatively stable market share between 25 percent and 27 percent over the next several years due to limited growth opportunities. However, asset quality in Qatar may experience some decline in 2026 as a consequence of ongoing regional conflicts. Despite these challenges, strong capital buffers, shareholder support, and low dependence on external funding are anticipated to help mitigate potential impacts, though exposure to the public sector remains concentrated.

Overall, S&P Global Ratings characterizes the Islamic banking sector across the GCC as well-positioned to manage near-term challenges, supported by solid capital reserves, dependable retail funding, and, in some markets, robust government backing. Nevertheless, the report underscores considerable uncertainty stemming from the ongoing Middle East conflict, which could affect commodity prices, supply chains, regional economic conditions, and credit environments.

For the UAE, the sector’s steady asset share combined with its strategic roadmap signals a trajectory of cautious growth rather than rapid expansion. S&P has indicated that it will continue monitoring regional developments closely and is prepared to adjust its forecasts accordingly as the situation evolves.