Reasons to be cheerful about the economic outlook appeared numerous at the start of this year.
Prospects for global growth were stronger and at the same time fears about a full meltdown in the euro zone were receding.
Rising oil prices and a rebound in stocks - both locally and globally - added to upbeat sentiment in the region. Subsequent choppiness in equity markers and fresh twists in the euro-zone crisis have replaced some of the optimism with caution in recent days.
Similarly, first-quarter results from several of the UAE's biggest banks reinforce the feeling that the economic terrain remains rocky.
Sluggishness continues to beset credit growth, an important driver of GDP before the global financial crisis. Emirates NBD, the country's largest bank, yesterday said its customer loan book during the quarter was broadly unchanged from the Dh204.1 billion (US$55.5bn) at the end of 2011.
And while overall profit growth for most lenders beat or was in line with analysts' forecasts, a closer look at the results provides worrying reading say experts.
"Credit growth is the main risk in the UAE," said Said Hirsh, a Middle East economist at Capital Economics. "Unlike in other countries a lot of the economy has been driven by credit growth and that's slowing the economy, particularly for the private sector."
As well as Emirates NBD's flat loan performance, Mashreq's loans dipped 1.4 per cent to Dh37.2bn during the period.
Negative or flat credit growth was also reported by some Abu Dhabi banks. Abu Dhabi Commercial Bank reported a 0.7 per cent dip in lending to Dh123.8bn during the quarter, while other big Abu Dhabi banks, including First Gulf Bank and Union National Bank, reported minimal lending growth.
Analysts blame the credit malaise on new regulations being brought in by the Central Bank to more closely control lending, along with concerns about further restructuring of debt by government-controlled companies.
As a result, banks are setting aside further capital cushions to protect themselves.
"We think balance sheet provisions will go up this year but this is at the discretion of management how they control the process," said Timucin Engin, Standard & Poor's associate director of financial institutions in the region.
Emirates NBD's provisions, including for loan losses, fell 20 per cent in the first quarter to Dh1.1bn. As a result, the bank's ratio of non-performing loans to gross loans rose to 14.1 per cent last month from 13.8 per cent in December, it said.
If the outlook for banks remains uncertain, other parts of the financial system are also in flux.
The total value of mergers and acquisitions announced in the Middle East and North Africa (Mena) in the first quarter dropped 40 per cent to $8.5bn from $14.1bn during the same period last year, a report released yesterday by Ernst & Young showed.
"We are still seeing a level of caution in the regional markets," said Phil Gandier, Mena head of transaction advisory services at Ernst & Young.
"Last year, there was an underestimation of the impact of two things in this region: one was the global financial crisis and the other was the Arab Spring."