meed-logo

line1 line2 line3
SIGN IN / REGISTER

UAE banks enjoy the good times

13 October 2023

MEED's November 2023 special report on the UAE also includes: 

> UAE construction sector returns to form
> Hail and Ghasha galvanises UAE upstream market
> UAE closes ranks ahead of Cop28
> UAE ramps up decarbonisation of water sector
> UAE aviation returns to growth

 

Talk to any Gulf banking analyst and the message is unanimous: UAE banks are doing very well, and there are few clouds dampening the outlook heading into 2024.

Nearly all UAE banks have reported strong growth in operating profit on the back of higher interest rates, wider margins, good loan growth and higher fees and commissions.

“Good GDP growth and improved business confidence have also contributed to an overall sense of wellbeing,” says Karti Inamdar, senior credit analyst at CI Ratings.

Fat profits reflect the robust environment for UAE banks. The big four UAE lenders – First Abu Dhabi Bank (Fab), Emirates NBD, Abu Dhabi Commercial Bank and Dubai Islamic Bank, which account for more than three-quarters of system assets – reported a combined net profit of $7.4bn in the first six months of 2023, up from $4.4bn for the same period of 2022.

“Bottom line profit is growing significantly for the four largest UAE banks, and that is a reflection of operating income growth, driven both by interest and non-interest income,” says Francesca Paolino, lead analyst at Moody’s Investors Service.

“That, in turn, has resulted from greater consumer confidence as macroeconomic conditions in the UAE remain strong.”

Region-beating returns

UAE banks topped the GCC region in the second quarter of this year in terms of return on equity, at 15.9 per cent – against a GCC-wide trend of 13 per cent. Net interest margins (NIMs) in the quarter were 3.44 per cent, compared with 2.44 per cent in the year-earlier period.

“Higher interest rates have helped banks in NIM expansion, as more than 60 per cent of banking sector deposits are still low or non-interest bearing,” says Puneet Tuli, financial institutions rating analyst at S&P Global Ratings.

Meanwhile, the cost of risk is reducing thanks to the more benign economic environment and stronger non-oil activity, which has also led to higher lending growth compared with S&P’s original expectations.

According to Fitch Ratings, UAE banks have been well-positioned for higher interest rates and, since 2021, their earning assets yields have risen more than their funding costs due to a still-high share of cheap current and savings accounts (Casa), and a large percentage of floating lending on their loan books. 

Higher interest rates and increased business volumes drove net interest income up 37 per cent in the first half of 2023, Moody’s Investors Service notes in relation to the four largest lenders. Again, interest income growth outweighed funding cost growth, as low-cost Casa accounts remained a big contributor to the banks’ funding.

The higher operating income reflects a combination of interest and non-interest income, supported by greater consumer confidence. Strong activity in non-oil sectors in the UAE, such as trade, tourism and real estate, is a pointer to this effect.

“A driver for UAE banks’ increased non-interest income is their foreign exchange and derivative income. They are also reporting higher fee-generating activity from both retail and investment banking,” says Paolino.

As of June 2023, non-interest income constitutes around one-third of the total operating income at the larger UAE banks. This reflects the large banks seeking to diversify their revenue streams while growing locally and internationally.

Robust fundamentals

Liquidity and capital positions are unsurprisingly robust, providing a layer of insulation should conditions for UAE lenders deteriorate.

The big four UAE banks maintained strong capital buffers with a tangible common equity ratio of 15.1 per cent in aggregate as of June 2023. Strong earnings contributed to higher core capital buffers, more than offsetting risk-weighted assets growth.

UAE lenders’ liquidity has been strong for several years now, given that deposit growth in the country is dependent on energy prices, which have been favourable.

“In the UAE, deposits are not difficult to find, especially if you are willing to pay a price, so it’s the cost of deposits that needs to be managed,” says Inamdar.

“There’s usually plenty of funding available in the financial system when oil prices are high.”

The main issue on the funding side is high customer concentration levels – a side-effect of the UAE’s large number of high-net-worth individuals and wealthy institutions.  

Asset quality has nonetheless improved in the UAE. New non-performing loan (NPL) classifications have declined and loan recoveries have been good, partly due to the improvement in the real estate sector, says Inamdar.

According to Moody’s, the overall NPL ratio declined to about 5 per cent as of the first half of 2023, from 5.4 per cent a year earlier, reflecting the recovering operating environment in the country. Yet this ratio is still one of the highest in the GCC.

“On the one side, you can expect some solid operating conditions to provide some improvements to NPL ratios,” says Paolino.

“But on the other side, UAE banks remain exposed to the real estate sector and also to single borrower concentrations, as well as to large loan restructurings.”

While continued high interest could stoke future asset quality problems, local banks have built up provisions with a coverage ratio in excess of 100 per cent.

Technological dividends

Looking ahead, UAE banks will focus on their digital proposition, meaning investment in innovation and technology will likely continue and operating costs remain high. 

Banks in the UAE are already benefitting from years of significant investment in technology.

“We have seen a reduction of banks' physical footprint, with one of the banks reducing its network from 50 branches to just five without any significant impact on activity,” says Tuli.

“Banks did not experience any major cyber risk issues as well. All this is helping their overall profitability.”

In terms of future growth, some cross-border forays can be expected.

For example, Fab and Emirates NBD have strong regional ambitions that could help grow their individual balance sheets. Their diversified business base – in terms of geography, products and customer segments – renders them less vulnerable to a downturn in any of the markets they operate in.

There are few downside risks facing UAE banks, barring an unexpected drop in oil prices or – notes S&P’s Tuli – a significantly higher-than-expected migration of deposits from non-interest-bearing instruments to remunerated instruments that will reduce the benefits of higher interest rates.

That should leave analysts continuing to tell a positive story about the country’s banking prospects.

https://image.digitalinsightresearch.in/uploads/NewsArticle/11207028/main.gif
James Gavin

Register for MEED's guest program now to access this article.

Click here to register
Exclusive from Meed
Related Articles
  • UAE monitors desalination plants after oil spill

    3 November 2026

    State utility Etihad Water & Electricity (EtihadWE) says it is monitoring seawater quality at desalination plant intake points following an oil spill off the UAE's northern coast.

    In a statement, the utility said it is continuing to "implement proactive measures to safeguard the water production system" following the spread of an oil slick towards coastal areas in the emirates of Umm Al-Quwain, Ras Al-Khaimah, Ajman and Sharjah.

    The spill involved the tanker Gem No. 2, which was struck by a projectile in UAE territorial waters on 9 October. The resulting oil pollution has raised concerns over potential contamination of seawater used by desalination plants along the northern coast.

    EtihadWE said its measures include continuous monitoring of seawater quality at plant intake points, regular testing of produced and distributed water, and verification of compliance with approved standards before water enters the distribution network.

    The utility added that the precautionary measures will not affect the continuity of water supplies to consumers in the Northern Emirates.

    In an earlier update on 30 October, the Climate Change & Environment Ministry said the oil slick was concentrated off the coast of Umm Al-Quwain, extending partially towards coastal areas in Ras Al-Khaimah, Ajman and Sharjah.

    The ministry said the concentration of pollution had declined significantly and that the leak had been stopped at source. However, surveying, monitoring and clean-up operations are continuing in affected coastal areas.

    The Energy & Infrastructure Ministry said specialised technical teams are continuing work to address technical issues with the tanker, including repairing damaged sections, restoring operational systems and assessing the integrity of its structure.

    The proximity of the oil slick to the Naqa'a desalination plant in Umm Al-Quwain has drawn particular attention. According to media reports, the slick approached to within approximately 2 kilometres of the facility.

    Naqa'a has a production capacity of 150 million imperial gallons a day, equivalent to approximately 682,000 cubic metres a day. The plant supplies water to the Northern Emirates and has been operational since 2022.

    It is owned by Naqa'a Desalination Plant, a special-purpose vehicle established by Mubadala, Acwa and the former Federal Electricity & Water Authority, now known as EtihadWE.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/21104534/main3427.jpg
    Mark Dowdall
  • Oman signs 1GW battery storage agreement

    3 November 2026

    Oman's Nama Holding, a subsidiary of Oman Investment Authority (OIA), has signed a framework agreement with China's State Grid International Development to develop battery energy storage systems (bess) with a targeted capacity of 1GW.

    The agreement covers two battery storage systems, each with a capacity of 500MW, at Duqm Industrial Station and Al-Subaikhi (Ibri Solar 3) Station.

    It is understood that both systems will operate at 400kV and connect to Oman's national electricity transmission grid.

    The deal is part of a package of economic and investment agreements signed by OIA with Chinese institutions and companies during the Oman-China conference on 2 November. OIA put the combined value of the bess projects at approximately RO384.5m ($1bn).

    The agreement comes as Oman advances plans to expand its renewable energy capacity and strengthen the electricity transmission network.

    Nama Power & Water Procurement Company is also procuring a separate 950MW standalone bess programme comprising five facilities in the sultanate, as MEED exclusively reported.

    The wider package of agreements, signed during Sultan Haitham Bin Tariq's state visit to China, covers sectors including renewable energy, mining, logistics, digital transformation and space technology.

    In the wind energy sector, Oman's O-Green and Shanghai Electric Wind Power signed a strategic partnership to establish a joint research and development centre and wind turbine testing facility at the Mawarid turbine factory in Duqm.

    The partnership will focus on adapting turbine technologies to Gulf climate conditions, supporting local manufacturing and developing green ammonia projects in Oman.

    The partnership is valued at RO3.85m-RO7.69m ($10m-$20m). It also identifies potential future contracts exceeding $1bn, alongside green ammonia projects and initial investment commitments in Oman exceeding $200m.

    In solar, OIA signed a preliminary term sheet with Chinese firms PCG Power and Hoymiles for a partnership valued at RO38.45m ($100m).

    The partnership aims to develop solar energy projects in Oman and establish a solar inverter manufacturing facility serving markets in the Middle East and North Africa.

    It is also intended to support the localisation of solar-related industries, expand domestic production and develop export markets.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/21102638/main.jpg
    Mark Dowdall
  • Consultants bid for Roshn’s north Riyadh scheme

    3 November 2026

     

    Saudi gigaproject developer Roshn Group has received proposals from lead design consultants for its planned flagship development in north Riyadh.

    Consultants submitted proposals on 1 November for detailed design, tender documentation and construction documents for the project’s first plot.

    The planned development covers 13.7 square kilometres and will be a residential-led mixed-use scheme containing retail, office, hospitality, education and civic facilities.

    The consultancy scope for plot one includes infrastructure, utilities, public-realm works and the site adaptation of Roshn’s residential prototypes. It has been divided into two work packages.

    The first package covers phases A, B and E, which cover about 7.8 million square metres (sq m) and will include 17,000 units.

    The second package covers phases C and D, covering about 4.7 million sq m and with more than 15,000 units.

    The site is bordered by the Expo 2030 site, King Abdulaziz Park, the Sports Innovation Lab Zone and National Housing Company’s Khozam development.

    Transport connectivity is a key element of the masterplan. Two metro stations are planned, including a station at the interchange between the existing Line 4 and planned Line 7, and a dedicated Line 7 station. The development could also be served by the planned Qiddiya high-speed rail link and a potential diversion of King Salman Road.

    The scheme will add to Roshn’s existing development pipeline in Riyadh, which includes the multi-phase Sedra community. The developer is expanding its focus from single-family housing to larger mixed-use districts under its Roshn 3.0 strategy.

    Last month, Roshn signed a preliminary agreement with TMG Saudi, the local subsidiary of Egypt’s Talaat Moustafa Group, to establish a joint venture to explore a separate mixed-use project in Riyadh.

    TMG Saudi will hold a 51% stake in the proposed joint venture and Roshn will hold the remaining 49%. The companies said they will undertake detailed masterplanning and prepare a business case for the project, which preliminary studies indicate could include more than 55,000 residential units.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/21101503/main.jpg
    Yasir Iqbal
  • Adnoc awards contract for Ruwais Diyab unconventional gas

    3 November 2026

     

    Abu Dhabi National Oil Company (Adnoc) has taken the final investment decision (FID) for the Ruwais Diyab unconventional gas development in Abu Dhabi.

    The project will deliver 345 million standard cubic feet a day (scf/d) of raw gas from 2029 over a 25-year period, with the potential to reach up to 1 billion scf/d in the future.

    Gas will be processed on site and connected to the UAE’s gas network through new pipeline infrastructure, “strengthening domestic supply, supporting the nation’s economic and industrial growth as well as Adnoc’s liquefied natural gas export ambitions”, the Abu Dhabi energy giant said when announcing FID on the project at the Abu Dhabi International Petroleum Exhibition and Conference (Adipec) 2026.

    According to sources, Adnoc has awarded the design, build and operate (DBO) contract for the Ruwais Diyab unconventional gas development to China-based Jereh Group.

    A formal kick-off meeting between Adnoc and Jereh is expected to take place later in November, sources told MEED.

    The DBO contract awarded by Adnoc to Jereh is understood to cover the second phase of the Ruwais Diyab unconventional gas development. The tendering exercise for the project started last year.

    “The development [of Ruwais Diyab] follows a disciplined programme of technical studies, field testing and subsurface analysis, delivered by Adnoc Onshore under a DBO model, to reduce development risk,” Adnoc said in its statement on 2 November.

    “It brings together advanced subsurface expertise, artificial intelligence-enabled drilling and completion technologies and integrated project delivery capabilities to support the efficient and responsible development of domestic gas resources,” it added.

    The UAE holds the seventh-largest gas reserves in the world, with 298 trillion standard cubic feet (scf) of conventional gas reserves and 160 trillion scf of unconventional gas resources.

    Adnoc holds the majority 60% stake in the Ruwais Diyab concession, the majority of which is situated onshore, while France’s TotalEnergies holds the other 40% interest.

    The agreement to explore, appraise and develop the area’s unconventional gas resources was signed by Adnoc and TotalEnergies in November 2018. The partners announced first gas output at the concession, presumably on a pilot basis, two years later.

    Adnoc has set a target of producing 1 billion scf/d of gas from the Ruwais Diyab concession by 2030, in line with its target to achieve self-sufficiency in overall gas production by the end of this decade.

    “Ruwais Diyab’s additional unconventional gas supply will strengthen Adnoc’s gas value chain, including Adnoc Gas’s ability to meet rising domestic and international customer demand,” Adnoc said in its 2 November statement.

    “Ruwais Diyab advances Adnoc’s ambition to establish a scalable unconventional gas business and create a platform for future growth,” the company added.

    Ruwais Diyab first phase

    Adnoc awarded the contract for engineering, procurement and construction (EPC) on the first phase of the unconventional gas development programme to local contractor Astra Engineering & Construction in early 2025, according to regional project tracker MEED Projects.

    The first phase aims to achieve a gas output level of 100 million scf/d. The main structures to be built in the first phase include a central processing facility, two well pads, interconnecting well fluid pipelines, gas export pipelines and tie-in stations.

    The EPC contractor will be required to provide services such as surveying, design, engineering, procurement, expediting, transportation, fabrication, construction, testing, installation, pre-commissioning, commissioning, site performance testing, operation and maintenance of all units.

    The duration of the EPC works is understood to be 20 months, with the contractor also responsible for operating and maintaining the phase one facilities for 15 years.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/21100974/main4351.png
    Indrajit Sen
  • Sultan Al-Jaber appeals for global energy security reset

    2 November 2026

    The global energy industry must fundamentally rethink how it builds, protects and delivers secure energy, following a year of unprecedented disruption that has exposed critical vulnerabilities in international supply chains, Sultan Ahmed Al-Jaber, the UAE’s Industry & Advanced Technology Minister and managing director and group CEO of Abu Dhabi National Oil Company (Adnoc Group) has said.

    Delivering the opening address at the Abu Dhabi International Petroleum Exhibition and Conference (Adipec) 2026 on 2 November, Al-Jaber said preparedness is essential to navigating an increasingly uncertain global landscape.

    “For decades, energy security was a question for specialists. It was debated in rooms like this, by people like us, in a language that few needed to learn. This year, every family, every farmer, every industry and every business owner is asking about it, and our collective job is to find the answers.”

    Noting that it is not possible to control every situation and remove every risk, Al-Jaber said: “The choices we make today will determine the energy landscape a decade from now. Let’s apply the lessons we have learnt. Let’s build capacity and everything that supports it. Let’s forge partnerships that hold when it matters. And if you want a partner you can count on, you are in the right room, in the right city, in the right country. Because when it counts the most, you can count on the UAE.”

    Setting out the case for a more resilient energy system, Al-Jaber said that since the disruption in the Strait of Hormuz, nearly 1 billion barrels of crude have been drained from inventories. He noted that in some markets, stocks of diesel are at their lowest seasonal level in 35 years, while others are facing a supply gap for liquefied natural gas (LNG) of 600 billion cubic feet. “Simply put, the world has eroded its supply buffers,” Al-Jaber said.

    “But supply is only half the story. The other half is delivery. Before the disruption, logistics were less than 5% of the cost of a barrel. Today, they are more than 30%. In short, energy security is not only measured at the point of production. It is now also measured at the point of delivery.”

    Mitigation steps

    Al-Jaber outlined five steps the energy industry can take to reduce the impact of future shocks. “First, accessible supply. We need expanded strategic storage, larger stockpiles of products and flexible refining capacity closer to consumer markets.

    “Second, routes to market. Supply only counts when it arrives. Infrastructure must be built before it is needed and enabled by advanced logistics.

    “Third, operational intelligence. Moving from automated operations to intelligent energy systems that anticipate risk, optimise performance and drive down the cost of every barrel.

    “Fourth, capital follows confidence. Policy must create it, finance must accelerate it and insurance must keep trade moving.

    “Fifth, which is in my view the most important, is people. Because behind every barrel that arrives is a person who made sure it did. Systems don’t carry responsibility, people do.”

    Photo credit: Adipec via LinkedIn

    https://image.digitalinsightresearch.in/uploads/NewsArticle/21091189/main2954.jpeg
    Indrajit Sen