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.
Register for MEED's guest program now to access this article.
Exclusive from Meed
-
-
Teams form for Qiddiya high-speed rail PPP7 May 2026
-
-
-
All of this is only 1% of what MEED.com has to offer
Subscribe now and unlock all the 153,671 articles on MEED.com
- All the latest news, data, and market intelligence across MENA at your fingerprints
- First-hand updates and inside information on projects, clients and competitors that matter to you
- 20 years' archive of information, data, and news for you to access at your convenience
- Strategize to succeed and minimise risks with timely analysis of current and future market trends
Related Articles
-
Dubai extends bids for Hassyan SWRO pipeline packages
7 May 2026
Dubai Electricity & Water Authority (Dewa) has extended the bid submission deadlines for two water transmission pipeline packages linked to phase two of the Hassyan seawater reverse osmosis (SWRO) desalination plant in Dubai.
The tenders cover the supply, installation, testing and commissioning works for glass reinforced epoxy (GRE) water transmission pipelines. The project will enable potable water to be transmitted from the phase two plant into Dubai’s transmission network.
The tender bond for the first package is AED9.6m ($2.6mn). The tender bond for the second project is AED17.9m. The deadlines for the two projects have been pushed back to 2 June and 4 June, respectively.
Local firms Al-Nasr Contracting, Tristar E&C and Wade Adams, along with UAE firm Binladin Contracting Group, are among the companies expected to submit bids for the main contracts for these projects.
In April, Dewa issued two separate tenders for transmission projects in the emirate.
The first tender covers the supply, installation, testing and commissioning of GRE water transmission pipelines and associated works at several locations in Dubai. The closing date for submissions is 4 June. Bidders are required to provide a tender bond of AED9m ($2.45m).
The second tender relates to 132kV cable works and associated modifications at several substations, including the Autosouq, Crystal and Danaro Road substations. The package also includes a new 132kV cable circuit and cable shifting works linked to the DXB INTRL 400/132kV substation.
The bid submission deadline is 11 June, with a required tender bond of AED17.5m.
In January, Dewa announced that construction of the 180 million imperial gallons a day phase one of the Hassyan SWRO independent water project was 90% complete.
READ THE MAY 2026 MEED BUSINESS REVIEW – click here to view PDFGlobal energy sector forced to recalibrate; Conflict hits debt issuance and listings activity; UAE’s non-oil sector faces unclear recovery period amid disruption.
Distributed to senior decision-makers in the region and around the world, the May 2026 edition of MEED Business Review includes:
> REGIONAL LNG: War undermines business case for Middle East LNG> CAPITAL MARKETS: Damage avoidance frames debt issuance> MARKET FOCUS: Conflict tests UAE diversificationTo see previous issues of MEED Business Review, please click herehttps://image.digitalinsightresearch.in/uploads/NewsArticle/16716599/main.jpg -
Teams form for Qiddiya high-speed rail PPP
7 May 2026
Firms are forming joint ventures as part of a public-private partnership (PPP) package to bid for the upcoming works on the Qiddiya high-speed rail project in Riyadh.
The latest development follows Saudi Arabia’s Royal Commission for Riyadh City, Qiddiya Investment Company and the National Centre for Privatisation & PPP receiving prequalification statements from firms by 30 April for the PPP package of the rail project.
The consortiums that are planning to bid for the PPP package are:
- McQuarie / Hitachi / Keolis / Albawani / WeBuild / Hyundai / HyundaiRotem
- Plenary / Siemens / MTR / FCC / Nesma & Partners / Freyssinet
- Vision Invest / CRRC / Mapa
- Mada International / Renfe / Alstom / Hassan Allam Construction / El-Seif Engineering Contracting / China State Construction Engineering Corporation / Limak Holding
- Lamar Holding / Talgo / Mermec / China Harbour Engineering Company / Al-Ayuni Investment & Contracting
The prequalification notice was issued on 19 January, and a project briefing session was held on 23 February at Qiddiya Entertainment City.
The Qiddiya high-speed rail project, also known as Q-Express, will cover 84 kilometres, connecting King Salman International airport and King Abdullah Financial District with Qiddiya City.
The line will operate at speeds of up to 250 kilometres an hour, reaching Qiddiya in 30 minutes.
There are five stations planned: Qiddiya Grand Central Station, Qiddiya Uptown Station, King Abdullah Financial District, Terminal 6 King Salman International Airport (KSIA) and Iconic Terminal at KSIA.
Last month, MEED exclusively reported that contractors had submitted their prequalification statements for the engineering, procurement, construction and financing package by 16 April.
In November 2023, MEED reported that French consultant Egis had been appointed as the technical adviser for the project. UK-based consultancy Ernst & Young is acting as the transaction adviser, and Ashurst is the legal adviser.
READ THE MAY 2026 MEED BUSINESS REVIEW – click here to view PDFGlobal energy sector forced to recalibrate; Conflict hits debt issuance and listings activity; UAE’s non-oil sector faces unclear recovery period amid disruption.
Distributed to senior decision-makers in the region and around the world, the May 2026 edition of MEED Business Review includes:
> REGIONAL LNG: War undermines business case for Middle East LNG> CAPITAL MARKETS: Damage avoidance frames debt issuance> MARKET FOCUS: Conflict tests UAE diversificationTo see previous issues of MEED Business Review, please click herehttps://image.digitalinsightresearch.in/uploads/NewsArticle/16716585/main.jpg -
Contractor wins $218m Aramco-backed logistics hub deal
7 May 2026
Saudi Amana, the local affiliate of UAE-based construction firm Group Amana, has won an estimated SR820m ($218m) contract to build a logistics complex at King Salman Energy Park (Spark) in Saudi Arabia's Eastern Province.
Asmo, the logistics joint venture of Saudi Aramco and DHL Supply Chain, awarded the contract.
Asmo received the main contract bids on 18 March, as MEED reported.
Al-Khobar-based engineering firm House of Consulting Office is the project consultant.
In February, Asmo signed an agreement with Bahrain‑headquartered Arcapita Group Holdings to deliver the project at Spark.
The project will feature a 43,000-square-metre (sq m), temperature-controlled Grade A warehouse; more than 3,000 sq m of offices and staff amenities; 5,300 sq m dedicated to chemicals storage; and an open yard covering about 1.2 million sq m.
Planned for large-scale industrial use, the site is expected to incorporate advanced warehouse and building management systems, end-to-end digital connectivity, automation and robotics.
It will also be developed in line with internationally recognised sustainability standards, featuring solar photovoltaic readiness, electric-vehicle charging infrastructure and a target of Leed Gold certification.
The development aims to support the next stage of Saudi Arabia’s logistics and supply chain expansion.
Under the deal structure, Arcapita will provide funding and retain ownership of the asset, while Asmo will develop the facility and then lease and operate it under a 22-year occupational lease.
According to a statement, “the scheme will be executed via a forward-funding model, underscoring a long-term commitment to national infrastructure”.
Asmo added that this will be its first purpose-built logistics centre and one of four strategic locations planned to anchor its nationwide logistics network, aligned with the National Transport and Logistics Strategy under Saudi Vision 2030.
READ THE MAY 2026 MEED BUSINESS REVIEW – click here to view PDFGlobal energy sector forced to recalibrate; Conflict hits debt issuance and listings activity; UAE’s non-oil sector faces unclear recovery period amid disruption.
Distributed to senior decision-makers in the region and around the world, the May 2026 edition of MEED Business Review includes:
> REGIONAL LNG: War undermines business case for Middle East LNG> CAPITAL MARKETS: Damage avoidance frames debt issuance> MARKET FOCUS: Conflict tests UAE diversificationTo see previous issues of MEED Business Review, please click herehttps://image.digitalinsightresearch.in/uploads/NewsArticle/16715420/main.jpg -
Kuwait postpones bid deadlines for four downstream oil tenders
7 May 2026
Kuwait has extended bid deadlines for four tendered contracts that are all focused on the country’s Mina Al-Ahmadi (MAA) refinery.
The contracts include a project that has been tendered by state-owned downstream operator Kuwait National Petroleum Company (KNPC) to upgrade water transmission and storage infrastructure at the refinery.
The contract will use the engineering, procurement and construction model and the tender was originally issued in October 2025 with an initial bid deadline of 4 January 2026.
The tender has already seen several extensions and the latest rescheduling has set the bid deadline back from 19 April 2026 until 10 May 2026.
The project is expected to take two years to complete and its scope is focused on expanding water storage capacity at the facility, either through extending existing tanks or building new tanks.
The winning bidder will also be responsible for developing associated infrastructure and upgrading related systems that transport desalinated water to the refinery, such as pipelines and other infrastructure.
In its 2024-25 annual report, KNPC said the project will help to meet demand for water at the facility’s refining and gas production units.
The other three contracts are all maintenance contracts, which were also tendered by KNPC and have had their bid deadlines extended until 30 June 2026.
The first of these is focused on mechanical maintenance of the Clean Fuel Project (CFP) units at the facility, as well as gas liquid production facilities.
The CFP units were added to the refinery as part of the $16bn CFP, and were brought online in 2021.
The project aimed to increase Kuwait’s capacity to produce low-sulfur fuels and, as part of the project, the MAA refinery was integrated with Kuwait’s Mina Abdulla (MAB) refinery.
The project increased the capacity of MAB to 454,000 barrels a day (b/d) and the MAA refinery to 346,000 b/d.
The second maintenance contract is focused on the mechanical maintenance of refining and production units at the MAA facility. The third contract is focused on workshop maintenance at the facility.
The MAA refinery has been hit in several attacks during the US and Israel's war with Iran, which started on 28 February 2026.
The full extent of the damage to the facility is currently unclear.
Last month, MEED revealed that state-owned oil companies in Kuwait have fast-tracked the award of contracts to repair damage to infrastructure in the oil and gas sector.
To expedite the award of contracts, deals were directly negotiated with trusted contractors without public tenders.
The contracts were negotiated by senior officials at Kuwait Petroleum Corporation subsidiaries including Kuwait Oil Company and KNPC, sources said.
It is not known whether any of these contracts related to repairs at the MAA refinery.
READ THE MAY 2026 MEED BUSINESS REVIEW – click here to view PDFGlobal energy sector forced to recalibrate; Conflict hits debt issuance and listings activity; UAE’s non-oil sector faces unclear recovery period amid disruption.
Distributed to senior decision-makers in the region and around the world, the May 2026 edition of MEED Business Review includes:
> REGIONAL LNG: War undermines business case for Middle East LNG> CAPITAL MARKETS: Damage avoidance frames debt issuance> MARKET FOCUS: Conflict tests UAE diversificationTo see previous issues of MEED Business Review, please click herehttps://image.digitalinsightresearch.in/uploads/NewsArticle/16715383/main.jpg -
Oman signs exploration agreement for methane hydrates
7 May 2026
Oman’s Ministry of Energy & Minerals (MEMR) has signed an agreement with Victarens Global Energy for the exploration of methane hydrates in Block 83 in the sultanate.
Under the agreement, Victarens Global Energy will perform a study of Block 83, which spans approximately 11,000 square kilometers onshore Oman, over an initial period of two years, extendable for an additional two years based on the outcomes of the studies.
“This step marks the first initiative of its kind in the sultanate to assess the potential of gas production through non-conventional methods, contributing to the diversification and sustainability of energy sources,” the MEMR said in a statement.
The agreement was signed in Muscat by Salim Bin Nasser Al-Aufi, Oman’s Energy & Minerals Minister, and Kenan Issa, CEO of Victarens Global Energy.
The project will be implemented in two main phases. The initial investment for the first phase is estimated at approximately $20m, while the second phase is expected to require around $200m, “reflecting the strategic importance of this project in exploring non-conventional energy resources”, the MEMR said in a statement.
ALSO READ: Oman awards manganese exploration concession deal
The scope of work on the first phase includes geological studies, analysis and reprocessing of existing geophysical data, and carrying out new seismic surveys to determine the volume and thickness of methane hydrate layers within the study area.
Based on the results of this phase, the project will proceed to the second phase, which involves installing extraction equipment and testing the feasibility of commercial production.
Should the project demonstrate economic viability for methane hydrate production, negotiations will be conducted between the MEMR and the company to establish a long-term agreement, including the commercial terms and profit-sharing mechanisms that ensure mutual benefits for both parties.
“This agreement aims to explore and assess methane hydrate resources, supporting the adoption of advanced technologies in the energy sector and reinforcing the transition toward future energy sources, while promoting innovation and sustainability in the utilisation of natural resources. The agreement aligns with the objectives of Oman Vision 2040, which focuses on economic diversification, the development of the energy sector and strengthening the sultanate’s position as a regional hub for energy and advanced technologies,” the MEMR statement added.
READ THE MAY 2026 MEED BUSINESS REVIEW – click here to view PDFGlobal energy sector forced to recalibrate; Conflict hits debt issuance and listings activity; UAE’s non-oil sector faces unclear recovery period amid disruption.
Distributed to senior decision-makers in the region and around the world, the May 2026 edition of MEED Business Review includes:
> REGIONAL LNG: War undermines business case for Middle East LNG> CAPITAL MARKETS: Damage avoidance frames debt issuance> MARKET FOCUS: Conflict tests UAE diversificationTo see previous issues of MEED Business Review, please click herehttps://image.digitalinsightresearch.in/uploads/NewsArticle/16703851/main1050.jpg