BE - September 2026

AI in Arab Banks capability is tied to people who un- derstand the bank. Vendor concentration is a growing exposure. The Financial Stability Board warned in November 2024 that the financial system’s depend- ence on a small number of model, hardware and cloud providers could become a systemic vulnerability, and that institutions remain accountable for outsourced models they do not control. For Arab banks, the point is sharper, because most regional insti- tutions are buying rather than build- ing. Several competitors in the same market may be running on the same underlying provider, with the same blind spots. Governance has not kept pace, and regulators have noticed. Most boards approved an AI strategy before they had a framework for overseeing model risk. The UAE guidance note makes the expectations concrete: a documented governance framework proportionate to the institution; a maintained inventory of every AI sys- tem in use; periodic testing for em- bedded bias; human oversight calibrated to the consequence of the decision; plain-language disclosure to customers, in Arabic and English, where decisions have high impact; accountability that does not transfer to a vendor; and the ability to stop a model through human intervention. Banks outside the UAE would do well to read that document as a pre- view rather than as somebody else’s problem. THE ISLAMIC EXCEPTION Islamic institutions account for a sub- stantial share of Arab banking, and their position deserves separate men- tion for two reasons. The first is encouraging. In the Gulf, Islamic banks are no less profitable than conventional ones. The per- formance gap reported in global studies simply does not appear here. Gulf Islamic institutions operate at scale, in developed markets, with the same access to infrastructure as their conventional peers, and on the measures that matter, they are not a different asset class. The second is less so. They talk about AI considerably less. Where roughly seven in ten conventional bank re- ports in the Gulf now discuss it, the Islamic figure is closer to five in ten, and unlike in the wider global sam- ple, that gap has not narrowed over the decade. Either these institutions are investing less and ceding ground in a capability well-suited to their model, or they are investing compa- rably and communicating poorly, paying the cost without collecting the benefit. Both are fixable. Neither fixes itself. The irony is that Islamic banking is unusually well-suited to what this technology does best. Its contracts are document-intensive and rule- bound by design, with sequencing requirements that carry real signifi- cance. Shariah audit today relies on sampling because no human team can read every contract. Machine reading makes testing the full popu- lation feasible for the first time, al- lowing an institution to demonstrate compliance across an entire portfolio rather than a slice of it. For a business built on adherence to a body of rules, that is a meaningful upgrade, and one that the conventional sector has no equivalent need to build. The governance dimension cuts the other way and deserves candor. A Shariah supervisory board is respon- sible, under both the AAOIFI and IFSB frameworks, for the institution’s compliance. It cannot discharge that responsibility over a process whose logic cannot be examined. Explain- ability is therefore not merely a pru- dential preference for Islamic banks; it is a governance requirement. Insti- tutions that treat Shariah review as a final approval stage rather than a de- sign constraint will find themselves rebuilding. “The banks that look strongest ten years from now will not be the ones with the most ambitious narrative today.” A SHORT AGENDA FOR A LONG JOB The practical to-do list is shorter than the volume of commentary suggests. Stop accepting narrative as progress. Disclosure does not distinguish be- tween banks that convert AI into earnings and those that do not. Boards should demand operational measures instead: transactions com- pleted without manual intervention, false-positive rates in monitoring, time to credit decision, and hours re- turned to the business. These are au- ISSUE 213 SEPTEMBER 2026 the BANKING EXECUTIVE 49