The UAE banking sector has continued to power ahead, reporting strong credit growth, solid profitability and improved efficiency in the second quarter of 2025 — a performance that underscores the country’s robust economic momentum and enduring investor confidence.
The latest UAE Banking Pulse by Alvarez & Marsal (A&M) reveals that the nation’s top lenders delivered another stellar quarter, reinforcing the UAE’s position as the most stable and profitable banking system in the region. Lending activity accelerated sharply, with net loans and advances rising 5 per cent quarter-on-quarter, outpacing deposit growth of 2.8 per cent as both corporates and consumers demonstrated growing confidence in the economy.
Economists view lending surge as a clear indicator of the UAE’s strong economic fundamentals. When banks lend more, it reflects optimism among businesses planning expansion and consumers willing to spend — both key drivers of economic growth. “Lending growth acts as the fuel for economic activity. The rise in credit demand shows that the UAE economy is not just stable but expanding with conviction,” analysts said.
The report shows that operating income increased by 3.9 per cent, while the cost-to-income ratio improved to 27.5 per cent, among the most efficient levels globally. The sector-wide return on equity climbed to 18.9 per cent, underscoring the industry’s robust profitability and investor appeal.
Although the cost of risk edged up to 0.51 per cent due to higher impairment charges, asset quality remained exceptionally strong. The non-performing loan ratio fell to 2.9 per cent, while the coverage ratio improved to 111.1 per cent, highlighting the resilience of UAE banks even amid global uncertainty. The net interest margin declined slightly by 9 basis points to 2.43 per cent, showing discipline in managing interest income amid a stabilising rate cycle.
A&M’s quarterly analysis covered the country’s ten largest listed banks — First Abu Dhabi Bank (FAB), Emirates NBD (ENBD), Abu Dhabi Commercial Bank (ADCB), Dubai Islamic Bank (DIB), Mashreq Bank, Abu Dhabi Islamic Bank (ADIB), Commercial Bank of Dubai (CBD), National Bank of Fujairah (NBF), National Bank of Ras Al Khaimah (RAK), and Sharjah Islamic Bank (SIB) — which together account for more than 80 per cent of the UAE’s banking assets.
Sam Gidoomal, Managing Director and Head of Middle East Financial Services at A&M, said the second-quarter results reaffirmed the UAE’s leadership in regional banking. “Earnings resilience and capital strength continue to support the UAE’s position as a leader in the region. Bank share prices have remained strong, trading at a premium to historical valuation multiples — a sign of investor faith in the sector’s fundamentals. This confidence is further fuelled by upcoming opportunities in mergers and acquisitions, dividend growth and regional expansion,” he said.
The findings mirror data from the Central Bank of the UAE (CBUAE), which shows that the country’s banking system remains one of the strongest globally, with total assets exceeding Dh4.2 trillion as of mid-2025 — a year-on-year growth of nearly 11 per cent. Total credit stood at Dh2.01 trillion, while deposits climbed to Dh2.64 trillion, driven by growing resident deposits and a steady influx of foreign funds.
The UAE’s banks also enjoy one of the highest capital adequacy ratios in the world — averaging above 16 per cent, well above Basel III requirements — alongside strong liquidity and funding buffers.
According to A&M, banks are increasingly diversifying revenue streams, with non-interest income rising 8.7 per cent in Q2, supported by growth in wealth management, digital banking, and trade finance. Operating expenses grew only 1.6 per cent, reflecting tight cost control and operational efficiency.
Asad Ahmed, managing director and head of Financial Services at A&M, said UAE banks continue to show agility and strategic foresight. “The sector delivered a steady and disciplined performance in Q2 2025. Credit growth remained strong, cost efficiency improved, and income remained stable despite margin pressure. These results highlight the adaptability of UAE banks in navigating a shifting rate environment while maintaining sound fundamentals,” he said.
Analysts say the sector’s resilience is underpinned by the UAE’s vibrant non-oil economy, which now contributes more than 77 per cent of GDP, supported by the country’s diversification strategy and a projected 4 per cent GDP growth in 2025. Credit expansion has been particularly strong in trade, construction, retail, and small and medium enterprises — all key sectors of the UAE’s long-term growth story.
The transformation of UAE banking is also being powered by digitalisation. The country’s leading banks — including Emirates NBD, Mashreq, FAB, and ADCB — are investing heavily in AI, blockchain, and fintech innovation, rolling out digital-first services such as virtual branches and open banking platforms to meet evolving customer needs.
Investor sentiment toward the UAE banking sector remains overwhelmingly positive. The Abu Dhabi Securities Exchange (ADX) and Dubai Financial Market (DFM) banking indices have outperformed regional peers in 2025, buoyed by record profits, strong capitalisation and consistent dividend payouts.
Industry observers say the UAE’s banking system remains a cornerstone of the nation’s economic transformation — combining high liquidity, prudent regulation, and advanced digital capabilities. “In a world of rising uncertainty, UAE banks have emerged as global benchmarks for stability and innovation,” analysts said. “Their strong capital position, earnings power, and regional reach make them pillars of confidence — both for investors and for the country’s broader economic ambitions.”
