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Stability is the watchword for UAE lenders

9 October 2025

 

The UAE banking sector presents a sharply different prospect to its larger neighbour Saudi Arabia, lacking the latter’s rapacious loan growth, but enjoying a relatively stronger deposit performance.

UAE banks have been building up their asset bases and reporting solid profits. Between June 2024 and June 2025, the aggregate assets of banks operating in the UAE increased by 15.4% in year-on-year terms to $1.35tn (AED4.97tn). Deposit growth has been expansive, with resident deposits up 12.9% to mid-year 2025, to $620bn (AED2.28tn).

The IMF, in a new assessment of the UAE economy released in early October, noted that the UAE’s financial sector’s strength was supported by strong capital and liquidity buffers, improved asset quality and conservative macroprudential policies. Banks remain profitable, with capital and liquidity ratios well above regulatory minimums and declining non-performing loan ratios.

The fund praised conservative loan-to-value and debt-burden ratios, together with the introduction of a countercyclical capital buffer, for helping mitigate risks and reduce vulnerabilities. It said the newly formed Financial Stability Council provided a valuable forum for national risk analysis.

Ongoing opportunities

If loan growth in the UAE market has been below that of its larger neighbour, banks in the federation have still been able to benefit from increased foreign lending opportunities, tapping into Saudi Arabia’s undimmed appetite for credit, related in large part to its booming housing sector.

“Most of the large banks in the UAE have revised their guidance for loan growth from high single digits to low teens on benign operating conditions. A not insignificant share of that is also in the form of cross-border lending, notably in Saudi Arabia through syndications or an actual presence on the ground,” says Badis Shubailat, an analyst at Moody’s Investor Service.

Meanwhile, the UAE’s economy is growing at a healthy rate of 4%-5%. With substantial spending seen in both Dubai and Abu Dhabi, that should generate significant business opportunities for local banks over the coming year.

“Bottom line profitability in aggregate terms has been expanding year on year for the four largest banks, very much driven by an underlying economic backdrop that remains supportive and which continues to be the number one driver for UAE bank performances,” says Shubailat.

Fees and commissions have supported profit performance at UAE banks, amid weaker interest income. The UAE’s big four banks – First Abu Dhabi Bank (Fab), Emirates NBD, Abu Dhabi Commercial Bank (ADCB) and Dubai Islamic Bank (DIB) – holding 73% of UAE banking system total assets, reported a combined net profit of $8.7bn (AED32bn) in H1 2025, a 6% increase on the same period of 2024.

With UAE banks’ loans-to-deposit ratio remaining below 100%, that indicates banks are sitting on excess funding. Unlike their Saudi peers, whatever they raise in the market is not because they are structurally reliant on market funding. However, because UAE banks need to diversify their funding base and lengthen their maturity profiles, in order to be in a position to follow credit demand, Emirati bank issuance is likely to increase. 

According to Moody’s, the big four banks maintained stable interest income over the first six months of 2025, despite the three rate cuts since September 2024. These Emirati banks also boast hefty liquidity buffers.

While lower interest rates may crimp banks’ bottom lines, they also have their benefits, for example contributing to a 60-basis point (bps) drop in the aggregate cost of funds, bringing it down to 4% in H1 2025. These dynamics helped shield overall net interest income, which grew by 6% year-over-year in the first half of 2025, according to Moody’s.

Detracting factors

Profitability in the first half of 2025 has been flagged as a deteriorating indicator. “However, the direction of travel going forward is more towards a softening trend with profitability as a proportion of total assets inching lower, albeit from healthy levels, as banks will start digesting renewed interest rate cuts, and face some margin compression,” says Shubailat.

Another challenge for UAE banks is the banking tax that was introduced a year ago, raising the taxation level from 9% to 15%. That will have an impact on profits. The big four banks’ tax bill stood at an aggregate AED6.6bn ($1.8bn) in H1 2025, noted Moody’s – equivalent to 17% of pre-tax earnings, compared to just 7% in 2023. 

“The four largest banks have strong profitability metrics, but are facing a turning point in the cycle as the rate cuts and tax burden begin to surface in first-half 2025 results,” says Shubailat.

A further challenge is the rising cost of impairment charges. Given the positive overall economic conditions, many UAE banks have concluded early repayment settlements on impaired loans, mitigating that overall impact. Some banks have even posted loan loss provisioning credits.

Similarly, the gradual uptick in impairment costs will persist as banks adjust their provisioning charges to the new Credit Risk Management Standards (CRMS) that took effect in late 2024.

Loan-loss provisioning is picking up after a year of significant recoveries, write-backs and early settlements, notes Moody’s. This led to an increase in the aggregate cost of risk for the largest four UAE banks to 36 bps in H1 2025, from 12 bps in the same period last year.

Emirates NBD reported a reversal in net impairment allowance, amounting to AED226m ($61.5m), due to ongoing recoveries and repayments, although the ratings agency noted that this figure is much lower than the previous year. On the other hand, ADCB, increased its provisioning charges by 37% due to legacy corporate account provisions in Q2 2025.

The four banks' overall non-performing loan (NPL) ratio in the first half of this year significantly improved by around 126 bps compared with H1 2024, reflecting solid recoveries and strong credit growth, but mainly cleanup efforts from the banks following the implementation of CRMS.

Bake in these factors and the message from the UAE is clear – the underlying economic backdrop remains supportive, and will provide a wealth of lending opportunities, both at home and abroad.

MEED's November 2025 special report on the UAE also includes:

> GOVERNMENT: Public spending ties the UAE closer together
> ECONOMY: UAE growth expansion beats expectations
> DOWNSTREAM: Taziz fulfils Abu Dhabi’s chemical ambitions at pace
> POWER: UAE power sector hits record $8.9bn in contracts
> CONSTRUCTION: UAE construction faces delivery pressures
> TRANSPORT: $70bn infrastructure schemes underpin UAE economic expansion
 

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James Gavin

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