meed-logo

line1 line2 line3
SIGN IN / REGISTER

UAE banks seize the moment

11 April 2024

 

After a surge in profits in 2023, UAE lenders have a positive outlook for this year. Strong capital buffers are expected to move even higher, while robust liquidity conditions provide a solid base for growing loan books.

The UAE economy’s revival, meanwhile, continues. That will support lenders’ loan quality, with borrowers’ ability to repay loans steadily improving – albeit from a high level of problem loans, which account for an estimated 4-5% of total loans.

The key factor in borrowers’ improved repayment ability is the UAE’s impressive non-oil performance, which has resulted in diminishing corporate problem loans.

With legacy Covid-era challenges now substantially reduced for the UAE private sector, banks’ non-performing loan (NPL) ratios have declined across the board.

Exposure to the property sector, considered a strategic vulnerability for lenders, is not proving problematic. Those developers with indebtedness issues are in the process of settling those.

For example, in December 2023, Dubai-based developer Union Properties announced an AED875m ($238.3m) debt repayment to a local lender, as part of a restructuring of its loans.

According to Moody’s Investors Service, the UAE banks’ coverage ratio, defined as loan-loss reserves as a proportion of problem loans, reached 103% in 2023 – meaning the existing stock of property-related loans is now fully covered.

The ratings agency said this level is comparable to other highly rated GCC banking systems, providing a healthy extra layer of protection to core equity against expected losses and strengthening total loss absorption capacity. 

However, there is a limit to the level at which NPLs will decline because of large legacy exposures and large restructurings emanating from previous cycles, where there was volatility in the non-oil space.

Last year, non-oil growth in the UAE was around 5%. That drove greater, repayment capacity from borrowers, which was very visible in the headline NPL ratios of the banks that pretty much declined on average, says Badis Shubailat, a bank analyst at Moody’s Investors Service.

“Still, there is some form of floor level to this decline because of the legacy exposures, and large restructurings that emanated from the previous credit cycles, during which we saw volatility in the non-oil space.”

This structural feature keeps the UAE at a disadvantage from a comparison standpoint to the other markets regarding asset quality indicators.

The broader profit picture in the UAE underscores the benign conditions confronting banks. The combined net income of all UAE banks increased by 54.1% in year-on-year terms in 2023, to AED76.9bn ($20.9bn).

High interest rates and supportive operating conditions ensured that asset yields (at 6.0% according to Moody’s) outpaced the cost of funding (3.7%). Banks managed to preserve low-cost current and savings accounts (CASA) and supported wider margins at 2.6% (compared to 2.2% in 2022). 

Profit boost

Results from the largest UAE lenders show a massive profitability boost last year. The country’s largest lender by assets, First Abu Dhabi Bank (FAB), saw 2023 net profit reach $4.5bn, an increase of 56% on an underlying basis compared to 2022.

Total assets increased 5% to $318bn. Dubai’s largest bank, Emirates NBD, reported a 65% increase in profit last year to AED21.5bn ($5.9bn), with a 16% increase in its asset base propelled by strong CASA increases.

According to Moody’s, the four largest banks – FAB, ENBD, Abu Dhabi Commercial Bank and Dubai Islamic Bank, which together accounted for around 74% of total UAE banking assets as of December 2023 – reported a combined net profit of $14.3bn in 2023, up from $9.6bn in 2022.

Analysts expect sustained profitability in 2024, given widening net interest margins and improving credit growth. Even anticipated interest rate cuts from the US Federal Reserve are unlikely to hit UAE banks hard, especially as these are only due to kick in in the second half of this year. Moreover, any interest rate reductions will likely be gradual. 

These improving metrics prompted Moody’s in mid-March to change the outlook for the UAE banking sector in 2024 to positive from stable.

The profitability improvement will also support banks’ capital ratios. Fitch Ratings expects the average CET1 ratio (post-dividend payments) to remain in the 13.5%–14% range, as the impact of lending growth will be broadly compensated by internal capital generation. Operating profits provide a solid cushion against any increase in the cost of risk, said the ratings agency.

That UAE banks are mainly funded by low-cost CASA deposits – considered ‘sticky’ – is a positive for the sector’s liquidity position. Last year, noted Moody’s, customer deposits made up 78% of UAE banks’ funding base. In contrast, the reliance on market funding is a moderate 17.7% of tangible banking assets.

Funding positions are supported by higher deposits from government-related entities (GREs), whose revenue performance has been sufficiently strong to allow them to deleverage to a greater degree.

Last year’s aggregate deposit performances from the top 10 banks, as reported by consultancy Alvarez and Marsal, showed that deposits grew 13.4% in 2023, while aggregate loans and advances increased by only 9%. Consequently, the loan-to-deposit ratio for these banks slipped 3.1 percentage points to 74.9%.

Some banks’ bottom lines face challenges. In March of this year, Dubai announced a 20% annual tax on foreign banks operating there, excluding those based in the Dubai International Financial Centre (DIFC). However, the Dubai authorities said the corporate tax rate will be deducted from the annual tax that foreign banks pay.

Volatile sectors

There remain vulnerabilities related to the construction and contracting sectors, which Moody’s notes are more volatile. It expects pockets of risks in the small- to medium-sized business segments because of high interest rates, particularly for smaller banks.

Exposure to foreign economies such as Turkiye and Egypt is more of a risk for the larger UAE banks.

“There is a foreign exposure story with large UAE banks, mainly in markets that have strong trade ties with the region, namely Egypt and Turkiye,” says Shubailat. “Those open avenues for growth and profitability diversification, but also present relatively less benign and more challenging environments.”

Such risks should easily be absorbed in the grand scheme of things. With overall conditions remaining supportive and healthy profits being generated, the UAE’s banks will look to expand loan books and capture the full growth potential of a vibrant domestic market.

The latest news and analysis on the UAE includes:

> Non-oil activity underpins UAE economy
> Dubai real estate boosts construction sector
> UAE and Kenya launch digital corridor initiative
> UAE in talks to invest in European nuclear power infrastructure
> Abu Dhabi’s local content awards surge to $12bn
> Dubai tunnels project dominates UAE pipeline
> UAE marks successful power project deliveries
> UAE is dropped from financial grey list

 

 

https://image.digitalinsightresearch.in/uploads/NewsArticle/11663269/main.gif
James Gavin

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

Click here to register
Exclusive from Meed
Related Articles
  • Bahrain’s economy walks precarious path

    26 November 2025

    Download the PDF

    MEED’s December 2025 report on Bahrain includes:

    > COMMENT: Manama pursues reform amid strain
    > GVT & ECONOMY: Bahrain’s cautious economic evolution
    > BANKING: Mergers loom over Bahrain’s banking system
    > OIL & GAS: Bahrain remains in pursuit of hydrocarbon resources
    > POWER & WATER: Bahrain advances utility reform
    > CONSTRUCTION: Bahrain construction faces major slowdown
    > TRANSPORT: Air Asia aviation deal boosts connectivity

    To see previous issues of MEED Business Review, please click here
    https://image.digitalinsightresearch.in/uploads/NewsArticle/15159666/main.gif
    MEED Editorial
  • Rua Al-Madinah signs hotel operations agreement

    26 November 2025

    Saudi Arabia’s Rua Al-Madinah, the Public Investment Fund (PIF) subsidiary tasked with Medina’s tourism and cultural development, has signed a hotel operations and management agreement with Adeera Hospitality for its Rua Al-Madinah project.

    Adeera Hospitality, which PIF also backs, will operate two buildings comprising 250 hotel rooms and 120 residential units under its Alia brand within the Rua Al-Madinah project, which is being developed near the Prophet’s Mosque.

    Adeera joins Rua Al-Madinah’s roster of hotel operators, which includes leading global hospitality brands such as Marriott, Hyatt, Accor and Hilton.

    The Rua Al-Madinah development includes the construction of 18 hotels under three categories – three-star, four-star and five-star – as well as secondary infrastructure.

    The towers will range in height from 11 to 21 storeys.

    Rua Al-Madinah estimates that superblock five will require 430,000 cubic metres of concrete, 875,000 square metres of block wall, 423,000 sq m of drywall, 74,000 tonnes of steel rebar, 215,000 sq m of tiles, and 228,000 sq m of facades, curtain walls and windows.

    The hotels, which will mainly provide accommodation for pilgrims visiting the holy city, will have a built-up area of about 65,000 sq m.

    In February last year, the client awarded two contracts worth SR300m ($80m) to international consulting firms for work on the superblocks four and five components of the Rua Al-Madinah project.

    Rua Al-Madinah signed a contract with US-based engineering firm Jacobs for design consultancy services for 12 hotels and other infrastructure for superblock four of the project.

    Another contract was signed with US-based KEO International Consultants to oversee the implementation of the superblock five project.

    Other consultants working on superblock five include US-based Perkins Eastman and Singapore-based Meinhardt. 

    UAE-based Ema Design is the interior designer.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/15158923/main.jpg
    Yasir Iqbal
  • Meraas confirms $517m The Acres villas contract award

    26 November 2025

    Dubai-based real estate developer Meraas, now part of Dubai Holding Group, has confirmed that it has awarded a AED1.9bn ($517m) contract to build 642 three-, four- and five-bedroom villas as part of the first phase of its residential community, The Acres, in Dubailand.

    The contract was awarded to the local firm United Engineering Construction Company.

    MEED exclusively reported in August that Meraas had awarded the contract for the project.

    The Acres project is designed by local architectural practice U+A Architects.

    The masterplan includes 1,200 villas ranging from three to seven bedrooms.

    It also features a nursery, school, clinic, mosques, clubhouses, a retail zone, a 2,000-square-metre garden, walking and biking trails, an outdoor gym, children’s playgrounds, swimming pools and sports facilities.

    The latest announcement follows Meraas awarding a AED440m ($120m) contract for the construction of the Northline residential project in the Al-Wasl area of Dubai.

    The contract was awarded to the local GCC Contracting Company.

    The project includes the construction of three residential buildings. Construction work is expected to begin shortly, and the project is slated for completion by 2027.

    Meraas’ latest project contract awards in Dubai are backed by heightened real estate activity in the UAE’s construction market. Schemes worth over $323bn are in the execution or planning stages, according to UK analytics firm GlobalData.

    The company forecasts that the output of the UAE’s construction sector will grow by 4.2% in real terms in 2025, supported by developments in infrastructure, energy and utilities, as well as residential construction projects.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/15158561/main.jpg
    Yasir Iqbal
  • December deadline for Riyadh airport fourth runway

    26 November 2025

     

    King Salman International Airport Development Company (KSIADC) has allowed firms until 3 December to bid for the design-and-build contract for the fourth runway at King Salman International airport (KSIA) in Riyadh.

    The tender was first floated on 17 April. The previous bid submission deadline was 28 October.

    It is understood that the third and fourth runways will add to the two existing runways at Riyadh’s King Khalid International airport, which will eventually become part of KSIA.

    KSIADC, which is backed by Saudi Arabia’s Public Investment Fund, prequalified firms in September last year for the main engineering, procurement and construction packages; early and enabling works; specialist systems and integration; specialist systems, materials and equipment; engineering and design; professional services; health, safety, security, environment and wellbeing services; modular installation and prefabrication; local content; and environmental, social, governance and other services.

    The entire scheme is divided into eight assets. These are:

    • Iconic Terminal
    • Terminal 6
    • Private aviation terminal 
    • Central runway and temporary apron
    • Hangars
    • Landside transport
    • Cargo buildings
    • Real estate

    In August last year, KSIADC confirmed it had signed up several architectural and design firms for the various elements of the project.

    US-based firm Bechtel Corporation will manage the delivery of three new terminals, including the terminal for commercial carriers, Terminal 6 for low-cost carriers and a new private aviation terminal with hangars.

    Parsons, also of the US, was chosen as the delivery partner for two packages. One covers the airside infrastructure, including the runways, taxiways, air traffic control towers, fuel farms and fire stations. The other involves the infrastructure connecting the airport to the rest of the city, including utilities and roads.

    UK-based Foster+Partners will design the airport’s masterplan, including the terminals, six runways and a multi-asset real estate area.

    US-based engineering firm Jacobs will provide specialist consultancy services for the masterplan and the design of the new runways.

    UK-based engineering firm Mace was appointed as the project’s delivery partner and local firm Nera was awarded the airspace design consultancy contract.

    Project scale

    The project covers an area of about 57 square kilometres (sq km), allowing for six parallel runways, and will include the existing terminals at King Khalid International airport. It will also include 12 sq km of airport support facilities, residential and recreational facilities, retail outlets and other logistics real estate.

    If the project is completed on time in 2030, it will become the world’s largest operating airport in terms of passenger capacity, according to UK analytics firm GlobalData.

    The airport aims to accommodate up to 120 million passengers by 2030 and 185 million by 2050. The goal for cargo is to process 3.5 million tonnes a year by 2050.

    Saudi Arabia plans to invest $100bn in its aviation sector. Riyadh’s Saudi Aviation Strategy, announced by the General Authority of Civil Aviation (Gaca), aims to triple Saudi Arabia’s annual passenger traffic to 330 million travellers by 2030.

    It also aims to increase air cargo traffic to 4.5 million tonnes and raise the country’s total air connections to more than 250 destinations.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/15158546/main.jpg
    Yasir Iqbal
  • Chinese contractor appointed for Algerian refinery project

    26 November 2025

    China’s Sinopec Guangzhou Engineering Company has signed a contract for the construction of a heavy naphtha catalytic processing unit at the Arzew refinery in Algeria.

    The contract was signed with the Algerian national oil and gas company Sonatrach.

    The contract uses the engineering, procurement, construction and operation model.

    Under the terms of the contract, Sinopec Guangzhou Engineering Company will handle the entire project lifecycle, from initial design to long-term management and operation.

    The project will be completed over 30 months, according to a statement from the Algerian Ministry of Hydrocarbons & Mines.

    The unit will have an annual capacity of 738,000 tonnes of heavy naphtha and will enable the refinery to increase gasoline production from 550,000 tonnes to 1.2 million tonnes a year.

    Algeria’s Ministry of Hydrocarbons & Mines said this represented “a significant step” that will strengthen the national capacity for gasoline production and help meet demand across various regions, particularly in the west and southwest of the country.

    Sinopec Guangzhou Engineering Company is a subsidiary of China Petroleum & Chemical Corporation (Sinopec), which is listed on stock exchanges in Hong Kong, Shanghai and New York.

    The project is part of Sonatrach’s wider programme to modernise and expand national refining capacities.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/15157814/main.jpg
    Wil Crisp