Banks in the United Arab Emirates (UAE) enjoyed a strong start to 2025, with quarterly profits increasing more than eight per cent to AED22.2billion, according to professional services firm Alvarez & Marsal.
In the latest edition of its UAE Banking Pulse, focused on Q1 2025, Alvarez & Marsal reveals that the country’s 10 largest listed banks enjoyed growth, driven by enhanced cost efficiency, rising non-interest income, and renewed merger and acquisition activity.
Despite a 2.1 per cent decline in net interest income, profitability improved across key ratios: return on equity climbed to 18.6 per cent, and return on assets improved to 2.1 per cent.
Deposits jumped 5.8 per cent, outpacing loan growth and pushing the loan-to-deposit ratio down to 74.7 per cent, reflecting improved sector liquidity. At the same time, continued digital upgrades and disciplined cost control drove the cost-to-income ratio to its lowest point in 12 months. In fact, operating expenses looked to have declined 7.8 per cent quarter-on-quarter, driving cost-to-income to 28.2 per cent.
According to Alvarez & Marsal, this cost discipline significantly contributed to profitability despite a flat topline. While the latest results come as the UAE braces for central-bank rate cuts, the banking sector looks well-positioned to sustain growth and absorb future market changes.
“UAE banks have entered 2025 on solid footing,” said Asad Ahmed, managing director, financial services at Alvarez & Marsal. “The first quarter carried forward strong momentum from the fourth quarter of last year, with robust loan and deposit growth. Despite pressure on margins from rate cuts, profitability remained resilient, supported by higher fee income and significantly lower impairments.
“Banks also saw continued improvements in cost efficiency and asset quality, with cost-to-income ratios declining and risk metrics strengthening. This disciplined performance underscores the sector’s adaptability in a shifting macroeconomic environment.”
Assessing the UAE
The sector’s asset quality also showed further improvement. The cost of risk (CoR) declined QoQ to 0.29 per cent, while the coverage ratio increased to 110.5 per cent. The non-performing loan (NPL) ratio also declined to 3.2 per cent, driven by recoveries and a stronger loan book profile.
Loan growth gained momentum in Q1 2025, with net loans and advances up 3.6 per cent QoQ, primarily driven by corporate and wholesale lending, which rose 5.1 per cent QoQ.
Sam Gidoomal, managing director and head of Middle East financial services at Alvarez & Marsal, said: “As the UAE financial markets evolve, the UAE Banking Pulse provides C-suite executives with sharp, actionable insights on current trends in the banking sector. In this edition, we have added to our M&A analysis, with a focus on valuations and share price movements amongst the peer group.”
The 10 listed banks analysed in Alvarez & Marsal’s latest report are First Abu Dhabi Bank (FAB), Emirates NBD (ENBD), Abu Dhabi Commercial Bank (ADCB), Dubai Islamic Bank (DIB), Mashreq Bank (Mashreq), 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).
