Net Income of UAE Banks Grew 8.4% in Q1 of 2025

Driven by a significant 59.3% q-o-q reduction in impairment charges and an 18% q-o-q rise in net fee and commission income, the overall operational efficiency improved with the cost-to-income ratio dropping to 28.2%, leading to an 8.4% rise in net income to $6.04 billion in the first three months of 2025.

In its latest edition of UAE Banking Pulse, which was released by leading global professional services firm Alvarez & Marsal (A&M), the report analysed the performance of the UAE’s 10 largest listed banks, which indicated a strong start to the year marked by enhanced cost efficiency, rising non-interest income, and renewed M&A activity.

The report, authored by Sam Gidoomal, Managing Director, Head of ME Financial Services, and Asad Ahmed, Managing Director of ME Financial Services at A&M, also observed an improvement in profitability metrics with Return on Equity (RoE) rising to 18.6% and Return on Assets (RoA) edging up to 2.1%.

The lending momentum gained pace with net loans up 3.6% q-o-q, led by strong corporate and retail loan growth. Deposits grew by 5.8% q-o-q, driven by a 7.6% increase in low-cost CASA deposits, which now made up 51% of total deposits.

Despite flat operating income and the decline in Net Interest Income (NII) due to prior rate cuts, the UAE’s banking sector remained relatively resilient, supported by efficiency gains and healthy balance sheet growth.

“Overall, the Q1 of 2025 pulse reflects a positive trajectory for Middle East banks, marked by solid profitability, expanding loan books, and improving return ratios, setting a strong tone for the year ahead,” A&M said.

While the aggregate total interest income decreased by 5.8% q-o-q in Q1’25, declining for the second time in the last four quarters, as NII declined 2.1% q-o-q. The aggregate net profit increased by 8.4% q-o-q, which was the highest growth witnessed in the last three quarters of 2024.

The operating expenses (-7.8% q-o-q) and impairment charges (-59.3% q-o-q decreased significantly, resulting in an increase in profitability.

The report also said that the UAE banks’ exposure to the real estate and construction sector increased to 14.4% in the first quarter, as against 14% in Q4-2024, indicating that banks have have increased their lending exposure to these sectors.

It may be mentioned here that the value of real estate deals in Dubai’s real estate market exceeded $31 billion, with total number of transactions jumping by 23.1% y-o-y to 42,269. The total value of transactions grew by 34.5% to $6.9 billion across 6,896 deals in the first quarter of 2025 in Abu Dhabi.

New Investments

The UAE banks started the year with a cautious stance in terms of M&A deals with only one transaction in the first quarter.

Emirates NBD, which owns 99.89% of shares in Emirates Islamic Bank (EIB), has made a mandatory cash offer to acquire the remaining shares at $3.25 per share.

Emirates NBD also received approval to begin due diligence for acquiring Egypt’s Banque du Caire, for around $1 billion, which is aligned with Egypt’s IMF reform program.

The Commercial Bank of Dubai and Emirates NBD (through ‘Confirm’ application) have integrated J P Morgan’s Kinexys Liink to enhance cross-border payment speed, security, and accuracy.

Even Dubai Islamic Bank increased its stake in Turkiye’s T.O.M. Group from 20% to 25%, strengthening its presence in the country’s financial sector.

The net Loans and Advances (L&A) for banks increased by 3.6% QoQ while deposits grew at a faster pace at 5.8% q-o-q in Q1 of 2025, while Loan to Deposit Ratio (LDR) declined to 74.7% q-o-q, lower by 157bps from Q4 of 2024, the report said.