Alvarez & Marsal, the global consulting firm, has released its report on the banking sector’s performance in the UAE, which evaluates the leading ten banks listed in the country for the third quarter of 2025. This period witnessed substantial growth in balance sheets, sustained strong earnings performance, and stabilization of interest margins despite the shifting interest rate landscape.
Total net loans and advances experienced a quarter-on-quarter increase of 6.5%, surpassing the 4.3% growth in deposits for the same period. This shift resulted in a rise in the loan-to-deposit ratio by 161 basis points, reaching 77.8%. Operating income rose by 3% compared to the previous quarter, amounting to AED 41.9 billion, driven by an increase in net interest income and fee revenues, despite a slight decline in other operational income. Net income grew by 4.3% quarter-on-quarter, bolstered by a decrease in provisions for impairment and taxes. The cost-to-income ratio increased by 87 basis points to 28.1%, reflecting higher investments in digital transformation and AI-based initiatives across the banking sector.
Margins generally remained stable, even with declining interest rates during the third quarter. The total net interest margin edged up by 2 basis points to 2.45%, offsetting changes in credit returns and rising funding costs. Spread decreased by 9 basis points quarterly, while the credit yield stabilized at 10.9%, with financing costs climbing by 11 basis points to 4.0%.
Asset quality performance remained strong, with the cost of risk improving by 6 basis points quarter-on-quarter to 0.45%, supported by modest loan growth and a reduction in provisions for impairment. Overall profitability exhibited robust growth, with a return on equity rising by 19.6% and the return on assets maintaining a steady rate of 2.1%.
The ten largest banks by asset size in the UAE included in the Alvarez & Marsal report are First Abu Dhabi Bank, Emirates NBD, Abu Dhabi Commercial Bank, Dubai Islamic Bank, Mashreq Bank, Abu Dhabi Islamic Bank, Dubai Commercial Bank, Fujairah National Bank, Ras Al Khaimah National Bank, and Sharjah Islamic Bank.
Sam Jidumal, General Manager and Head of Financial Services in the Middle East at Alvarez & Marsal, stated, “UAE banks continued to demonstrate strong revenue momentum in the third quarter of 2025, thanks to robust credit growth, stable margin rates, and improved asset quality. Despite lower interest rates, the sector maintains its robust performance, underpinned by solid macroeconomic fundamentals and an increased focus on digital and operational transformation within banks. Investor confidence in the sector remains strong, as evidenced by the continued demand for bank stocks that are trading at higher prices.”
Key Recorded Trends
The report highlighted that operating income increased due to stronger net interest income and fee revenues, with total operating income rising by 3% on a quarterly basis. This growth was driven by a quarterly increase of 5% in net interest income along with a 7.3% rise in fee revenues, countered by a decline in other operating income sources.
The net interest margin held steady at 2.45%, reflecting a sector-wide increase of 2 basis points on a quarterly basis, despite reduced spreads and increased funding costs. The return on credit remained unchanged at 10.9%, while financing costs rose by 11 basis points to 4.0%.
Cost efficiency saw a decline as banks invested in digital transformation, with the cost-to-income ratio rising by 87 basis points on a quarterly basis to 28.1%, driven by increased expenditures for digital upgrade initiatives and those based on artificial intelligence. Both Fujairah National Bank and Abu Dhabi Commercial Bank recorded the largest increases in this area.
The report noted improvements in risk costs attributed to solid asset quality levels, with the cost of risk decreasing by 6 basis points on a quarterly basis to 0.45%. Provisions for impairments also fell by 6.9% to AED 2.7 billion. Six of the top ten banks in the UAE improved their risk costs, led by Fujairah National Bank.
Profitability levels stayed robust, supported by the decline in provisions for impairment and stable margins, with the return on equity increasing by 25 basis points quarter-on-quarter to 19.6%, while the return on assets remained stable at 2.1%.
Bank stock valuations continue to provide support as many banks trade above the sector averages, with an average price-to-book ratio of 1.6 times, notably led by Abu Dhabi Islamic Bank at three times, followed by Dubai Commercial Bank at 1.8 times and Fujairah National Bank at 1.7 times. The total return on sector dividends reached 5.0%, with Mashreq Bank offering the highest yield at 8.7%.