UAE bank credit jumps as government-linked deposits drive liquidity growth in March

Abu Dhabi | EcoPulse24

UAE banking sector assets and credit expand despite decline in narrow money supply

The UAE banking sector recorded strong credit and asset growth in March 2026 despite a decline in narrow money supply, as government-linked entities and public-sector deposits continued supporting liquidity conditions across the financial system.

According to the Central Bank of the UAE, gross bank assets increased 1.5% month-on-month to AED 5.56 trillion at the end of March, while gross credit expanded 2.5% to AED 2.70 trillion, supported primarily by growth in domestic lending.

The central bank said credit growth was driven mainly by lending to the government sector, which rose 6.9%, alongside a 6.0% increase in credit to government-related entities (GREs). Private-sector credit also posted positive growth of 1.1%, indicating continued financing activity across the broader economy.

At the same time, UAE bank deposits increased 1.4% to AED 3.45 trillion, with the strongest contribution coming from deposits linked to government-related entities, which surged 16.3% during the month. Government deposits also rose 9.0%, while private-sector deposits declined 1.9%.

The data showed mixed monetary conditions beneath the headline banking expansion. Narrow money supply aggregate M1 declined 2.5% to AED 1.07 trillion, largely due to a 4.0% drop in monetary deposits, although currency circulating outside banks increased 6.9%.

Meanwhile, broader money supply measure M2 rose 0.4% to AED 2.87 trillion, supported by a sharp increase in quasi-monetary deposits, particularly from government-related entities. The broadest liquidity measure, M3, climbed 1.6% as government-sector deposits increased 8.2%, reinforcing public-sector influence on domestic liquidity conditions.

The monetary base declined 4.3% during March, mainly due to lower reserve requirements and a decline in monetary bills and Islamic certificates of deposit, although overnight bank deposits at the central bank rose sharply.

UAE Banking and Liquidity Indicators - March 2026

EcoPulse24 Analysis

The latest UAE monetary data highlights an increasingly important feature of the country’s financial system: liquidity growth is becoming heavily linked to government and government-related entity activity rather than broad-based private-sector expansion alone.

The strongest flows during March came from GRE and public-sector deposits, alongside accelerated lending to government-linked sectors. That dynamic reflects the central role state-backed institutions continue playing in driving investment, infrastructure spending and strategic economic expansion across the UAE.

At the same time, the decline in narrow money supply and weaker private-sector deposits suggest liquidity conditions are becoming more concentrated rather than universally expansionary. This does not necessarily indicate financial weakness, but it does imply that public-sector balance sheets remain the primary stabilizing force within the banking system.

The continued growth in private-sector credit is still important because it signals that financing demand inside the non-oil economy remains active despite global uncertainty and tighter international financial conditions.

From a macro perspective, the divergence between declining M1 and rising broader money aggregates also suggests a shift toward longer-duration deposit structures and institutional liquidity rather than purely transactional cash activity.

The broader implication is that the UAE banking system continues operating from a position of strong liquidity and balance-sheet expansion, supported by sovereign-linked capital flows and ongoing economic investment activity tied to infrastructure, energy, logistics and strategic development initiatives.

This trend is particularly significant at a time when Gulf economies are increasingly using state-backed investment frameworks to support long-term growth while maintaining financial-system stability amid global geopolitical and market volatility.