UAE Law and Practice Contributed by: Arsalan Tariq, Nil Acar and Ahmed Kamran, BSA LAW
1. Loan Market Overview 1.1 The Regulatory Environment and Economic Background
bond/sukuk structures adopt different financing terms and structures with more robust security packages and leveraged finance covenant packages depending on the risk assessment of the transactions. 1.4 Alternative Credit Providers Private credit and alternative lenders remain marginal compared to the dominant role of commercial banks, yet continue to evolve rapidly. Regional private credit funds and global investment managers are increas- ingly exploring UAE mid-market and acquisition financings, particularly where banks are constrained by regulatory limits. While such activity accounts for a smaller portion of overall lending, it is common to see a covenant shift in these types of financings especially towards adopting more robust security packages and high-yield type leveraged finance covenant packages depending on the risk structure of the transaction. 1.5 Banking and Finance Techniques UAE financing techniques continue to evolve. Holdco structures in the DIFC and the Abu Dhabi Global Mar- ket (ADGM) are frequently used to consolidate debt and simplify cross-border security packages. Preferred equity and shareholder loans are deployed alongside senior debt, particularly in sponsor-led deals. It is also common to come across call options and convertible structures as methods to secure conventional and Sharia compliant debt financing. Sharia compliant structures remain important, with hybrid financings combining murabaha and ijara tranches. On the retail side, fintech adoption accelerated in 2025, driven by the Central Bank’s open banking framework and its support for digital payment service providers. 1.6 ESG/Sustainability-Linked Lending ESG lending has recently gained momentum. UAE banks began integrating sustainability-linked margin ratchets into syndicated loans, with pricing tied to key ESG indicators such as emissions reduction, renew- able energy capacity, or green building certifications. The Central Bank has also issued guidance encourag- ing lenders to monitor climate risk exposure. The most active ESG financings are in renewable energy, utilities and real estate. This trend is expected to deepen as the UAE pursues its Net Zero by 2050 strategy.
In 2025, the UAE loan market continued to grow steadily. The Central Bank reported total banking assets above AED4.7 trillion as of the first quarter of 2025, showing resilience despite global challenges and higher interest rates. Banks remained profitable, as wider interest margins balanced slower lending in some areas. Regulators kept a close focus on Basel III standards, liquidity coverage and stress testing. Economic activity was supported by stable oil rev- enues, OPEC+ production policies, and major govern- ment spending on housing, infrastructure and renew- able energy projects. Real estate financing stayed strong, with both residential and commercial lending continuing to expand. Looking ahead, fiscal spend- ing and diversification plans are expected to sustain demand for structured and project financings, even as Global conflicts have directly influenced the UAE loan market in 2025. The UAE has remained a hub for high net worth individuals, leading to new incorporation and financing activity in free zones. In parallel, local lenders have tightened compliance protocols in line with international sanctions regimes. In general, the uncertainty in other regions has rein- forced the UAE’s position as a market offering regu- latory certainty. Funds flowing into the UAE have increased transactional activity while strengthening the capital base of the UAE banks, supporting their ability to underwrite larger syndications and project financings. 1.3 The High-Yield Market The high-yield bond segment continues developing in the UAE. While sukuk issuance across the GCC con- tinued to rise in 2025, particularly among sovereign and quasi-sovereign entities, a significant portion of the domestic corporate lending still primarily relies on conventional and Islamic loans. While the financing terms and structures remain the same for convention- al and Islamic loans for the most part, the high-yield global markets remain uncertain. 1.2 Impact of Global Conflicts
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