2Q26 Preview: Liquidity, margin and asset quality in focus

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2Q26 Preview: Liquidity, margin and asset quality in focus

Update

July 7, 2026 01:00 PM GMT

Morgan Stanley & Co. International plc (DIFC Branch)+MMENA Banks | EEMEA Shabbir Malik

Equity Analyst

2Q26 Preview: Liquidity, margin Shabbir.Malik@morganstanley.com +971 4 709-7057

EEMEA - Banks & Fintech

Europe

Industry View In-Lineand asset quality in focus

We favour Saudi banks - improving liquidity, stable NIMs, and

benign assset quality. We are cautious on the UAE - tighter

liquidity and higher provisioning. Key Overweights: SNB and Rajhi

in Saudi Arabia; ADCB (improved NMC recovery visibility) and

ADIB (asset quality resilience) in the UAE.

Summary: We expect Saudi banks' earnings to grow 5% YoY (stable QoQ),

supported by improving liquidity, stable-to-better NIMs and benign asset quality,

even as loan growth moderates as banks prioritise profitability and capital efficiency

following the introduction of the CCyB buffer. Fee income should remain mixed,

though Rajhi and SNB are likely to sustain momentum. Interim dividend payouts

should be normalised around c.50%. Our view on UAE banks is cautious, as we

expect sector earnings to decline 8% YoY (-11% QoQ), driven primarily by higher

provisioning and lower Non-II. Loan growth is likely to moderate after a strong 1Q26

as economic activity readjusts and tighter liquidity (LDR at 80%; EIBOR-SOFR

spread turning positive) should weigh on margins. We expect overlays to remain

intact despite regional de-escalation.

MSe vs. Consensus: UAE: We are 13% below consensus on ENBD (lower Non-II and

higher provisioning) and 6% ahead of consensus on ADIB (lower provisioning). Saudi:

ANB we are 10% higher mainly on Non-II. SNB we are in-line on earnings, but we

diverge meaningfully on Non-II, OPEX and provisioning.

Key focus areas: