On 17 March 2026, the CBUAE moved swiftly to approve a five-pillar Financial Institution Resilience Package in response to the Iran conflict, backed by record foreign exchange reserves exceeding AED 1 trillion^[1]. The response is well-structured and consistent with the CBUAE’s track record of proactive crisis management, having set clear precedents in 2008 and 2020.

The measures follow a proven playbook: provide banks with liquidity, ease the rules on how much capital and reserves they must hold, give flexibility on when to classify a struggling loan as a problem loan, and keep credit flowing to the economy. 

The playbook is familiar. The situation is not. This is the first recent use of these tools by the CBUAE in response to direct conflict-related disruption affecting economic infrastructure within the UAE.

THREE KEY TAKEAWAYS

1. The CBUAE has capacity in reserve and has signalled its readiness to use it. 

The current package is deliberately calibrated below COVID levels. During COVID, the CBUAE halved the reserve requirement from 14% to 7%, freeing AED 61bn, and provided AED 50bn in zero-cost funding. The current measures allow banks to access 30% of existing reserve balances but do not cut the requirement itself, and no zero-cost facility has been announced. TESS started at AED 100bn and grew to AED 256bn. The CBUAE board has explicitly stated it stands ready to deploy further tools.

2. Loan-classification flexibility is the most commercially significant measure. 

Under normal accounting rules, when a borrower falls behind on payments, the bank must reclassify the loan and set aside more capital as a provision against potential losses. That makes the bank less willing to extend further credit. The flexibility is intended to reduce pressure for immediate reclassification of affected loans, helping preserve borrower access to credit and reduce pro-cyclical tightening while the conflict is ongoing. The detail on scope and duration has not been published.

3. The liquidity margin across the GCC banking system is adequate but warrants monitoring. 

S&P estimates potential domestic deposit outflows of up to US$307bn under a stress scenario, against US$312bn in bank cash and central bank balances. The CBUAE’s record reserves provide a meaningful backstop. No significant outflows have been reported to date.

THE PRECEDENT^[2]

The CBUAE has a strong track record of crisis intervention. It has deployed system-wide packages twice before, and in both cases demonstrated the willingness and capacity to expand its response as conditions evolved.

WHAT IT MEANS

For the Economy

The UAE has the fiscal capacity to sustain intervention for an extended period. S&P estimates the government’s net asset position at ~184% of GDP, liquid assets at ~210% of GDP, and public debt at only ~27% of GDP^[3]. Near-term disruption is material: airspace closures, a sharp drop in Strait of Hormuz traffic, and significant disruption across aviation, shipping, tourism, and energy. Chatham House considers a ~1% GDP contraction plausible if the conflict is short-lived^[4]. The constraint is not fiscal capacity, but the duration of disruption and the speed of normalisation.

For Borrowers 

The loan-classification flexibility means that borrowers affected by the conflict may benefit from greater regulatory flexibility before their loans are reclassified. Once a loan is reclassified, the bank must hold more capital against it, which makes them less willing to extend credit or restructure. The flexibility helps interrupt that cycle. Regulatory clarity on scope and duration remains outstanding. This is the most commercially significant detail still outstanding.

For Creditors and Deposit Holders 

The CBUAE’s record reserves (AED 1tn+) and system-wide bank liquidity of ~US$312bn provide a meaningful backstop against S&P’s US$307bn stress-case deposit outflow estimate. An additional ~US$630bn is available from investment portfolio liquidation at a 20% haircut. Under the extreme stress scenario, combined losses for the 45 largest Gulf banks could reach ~US$37bn. S&P’s assessment: manageable^[5]. No significant outflows have been reported to date. UAE corporate bonds have been the worst-performing segment in emerging markets this month, with real estate names hardest hit^[6]. International capital market issuance may become more difficult and expensive while the conflict persists.

WHAT TO WATCH

• Loan-classification flexibility detail (scope, duration, eligibility)
• IFRS 9 joint guidance from the CBUAE, DFSA and ADGM FSRA, similar to the guidance issued during COVID^[7]
• Deposit flow data over the next 2-4 weeks, particularly non-resident and institutional segments
• Potential expansion of the package: the CBUAE has stated its readiness to deploy further tools.
• Rating agency actions: S&P affirmed AA/A-1+ stable on 6 March; any outlook revision would affect cost of capital system-wide  

SOURCES

[1] Central Bank of the UAE, “CBUAE Board Reviews Strength and Resilience of the UAE’s Financial System and Banking Sector and Approves a Proactive Financial Institution Resilience Package Backed by CBUAE’s Assets of AED 1 Trillion,” 18 March 2026 (package approved by the Board on 17 March 2026).

[2] A&M analysis based on: Central Bank of the UAE, “CBUAE Board Reviews Strength and Resilience of the UAE’s Financial System and Banking Sector and Approves a Proactive Financial Institution Resilience Package Backed by CBUAE’s Assets of AED 1 Trillion,” 18 March 2026; Central Bank of the UAE COVID-19 support announcements and 2020 Annual Report / 2020 Financial Stability Report; Joint Guidance of the Central Bank of the UAE, Dubai Financial Services Authority and ADGM Financial Services Regulatory Authority on IFRS 9 Expected Credit Losses in the context of COVID-19, April 2020; IMF Finance & Development, March 2010, and IMF staff report materials on the UAE for the 2008-09 measures; and S&P Global Ratings public materials dated March 2026.

[3] S&P Global Ratings, “Research Update: United Arab Emirates Ratings Affirmed At ‘AA/A-1+’; Outlook Stable,” 6 March 2026.

[4] Chatham House, “How will the Iran war affect the global economy?”, March 2026.

[5] Reuters, “Gulf banks face $307 billion deposit flight risk if war worsens, S&P says,” 17 March 2026, reporting S&P Global Ratings analysis dated 16 March 2026.

[6] Bloomberg reporting on March 2026 UAE corporate bond performance.

[7] Joint Guidance of the Central Bank of the UAE, Dubai Financial Services Authority and ADGM Financial Services Regulatory Authority on IFRS 9 Expected Credit Losses in the context of COVID-19, April 2020.