Following their presentation at the Fire Middle East Conference in Dubai, Matt Williams and Grant Thornton's Nick Wood and Prashan Patel share their thoughts on the topic of non-performing loans in the Gulf Cooperation Council.
The market for non-performing loans (NPLs) in the Gulf Cooperation Council (GCC) region is at a relatively early stage of development, with the United Arab Emirates (UAE) leading market activity. Since 2022, five publicly disclosed NPL portfolio sales have taken place in the UAE, alongside several smaller transactions which have not been widely reported. A number of banks across the GCC are currently evaluating their NPL portfolios with a view to realising value and improving balance sheet efficiency.
Key drivers behind this trend include strategic portfolio management, optimisation of balance sheets and increasing political and regulatory scrutiny. Recent activity by institutions such as Abu Dhabi Commercial Bank (ADCB) demonstrates that active balance sheet management can result in tangible benefits – for example, an improved credit rating by S&P was attributed to ADCB’s positive steps in March 2025.
Traditionally, many GCC banks have preferred to retain non-performing assets due to concerns regarding crystallisation of losses and potential reputational impact. However, with all UAE banks now operating under IFRS 9’s expected loss impairment model – and wider alignment with international standards such as Basel III – there is greater regulatory focus on accurate provisioning and valuation. This shift should facilitate more effective pricing of asset portfolios and help narrow the bid/ask spread between buyers and sellers.
Holding sub-optimal assets over extended periods impedes bank performance and restricts lending capacity at a time when regional economies are seeking sustained growth through investment in strategic infrastructure projects. Accordingly, an uptick in NPL transactions is anticipated even though current NPL ratios remain low by historical global benchmarks.
Pricing considerations
NPL pricing typically reflects prior loan provisioning by each institution; it is influenced by objective standards set out by relevant central banks but also incorporates subjective judgments on both sides of a transaction. Buyers will consider factors such as visible collateral value, enforcement costs and timing, alongside risk discounts. Sellers weigh up similar elements but must additionally account for retention costs associated with impaired loans on their balance sheets. Benchmarking remains challenging due to the heterogeneous nature of loan types and the absence of a fully developed secondary market within the region.
Legal enforcement landscape
The legal environment for enforcement in the GCC is evolving positively. Private equity investors are increasingly comfortable with prospects for recovery following default events. Final judgments from GCC jurisdictions are generally recognised across most common law countries provided there is no prospect of appeal.
Transaction architecture
A range of transaction structures exists within GCC NPL markets:
- Outright sales: These involve legal and beneficial transfer of assets to a purchaser; comprehensive due diligence from both contractual and regulatory perspectives is essential.
- Synthetic transactions: Commonly employed where underlying documentation restricts direct transfer; these mechanisms transfer economic risk without passing legal title.
- Securitisations: While novel within GCC jurisdictions, securitisation has the potential to provide alternative distribution channels for NPLs if appropriately structured.
- Shariah-compliant debt: Transactions involving shariah-compliant loans can be structured using standard LMA documentation supplemented by specific purchase agreements reflecting commodity trades as consideration.
In order to attract global investors effectively, GCC financial institutions may benefit from adopting best practices from established international NPL markets – such as using familiar sale/purchase arrangements or sub-participation techniques – always ensuring compliance with local laws and regulations.
Regulatory context and future outlook
Close collaboration with local counsel remains critical to ensure compliance with domestic requirements – and may provide additional comfort to central banks regarding purchasers’ conduct vis-à-vis borrowers. Navigating stakeholder interests – including those of regulators – is fundamental when structuring successful transactions.
Although securitisation solutions remain nascent in this region, experience from other jurisdictions (eg, Italy, Ireland, UK, Greece or Cyprus) offers valuable comparative insight into alternative approaches for managing distressed assets. It should be noted that simply achieving balance sheet de-recognition does not guarantee systemic improvement – for instance, delayed resolution processes observed in Cyprus underscore the importance of robust workout regimes operating alongside well-functioning secondary markets.
Recommendations for policymakers include fostering liquidity through increased transparency – which supports accurate pricing – and promoting efficient workout mechanisms that avoid undue accumulation of unresolved cases among investor groups. Over time, these measures should contribute towards positioning GCC lenders as stable institutions capable of weathering financial stress while supporting sustainable economic development across their respective markets.
