Alvarez & Marsal, a global firm specializing in consulting services, has published a report on the performance of the banking sector in the UAE for the first quarter of 2025. The report reviews the performance of the ten largest banks listed in the country and confirms a strong start for the banking sector this year, marked by improved cost efficiency, an increase in non-interest income, and a resurgence in mergers and acquisitions activity.
Total net income rose by 8.4% quarter-on-quarter, reaching 22.2 billion AED. This increase followed an 18% quarterly rise in net fees and commissions. Additionally, the return on equity climbed to 18.6%, and the return on assets reached 2.1%.
Loan growth gained momentum in the first quarter, with net loans and advances increasing by 3.6% on a quarterly basis. This growth was largely driven by corporate and wholesale loans, which rose by 5.1%. Deposits grew even faster, up by 5.8%, fueled by strong inflows into current and savings accounts (+7.6%). Consequently, the loans-to-deposits ratio improved to 74.7%, indicating enhanced liquidity within the sector.
Banks continued to benefit from digital transformation and disciplined cost management, with operating expenses decreasing by 7.8% on a quarterly basis. This led to a significant 234 basis point improvement in the cost-to-income ratio, down to 28.2%, the best level in a year. This cost discipline has notably contributed to profitability despite stable revenue levels.
Asset quality in the sector showed further improvements, as the cost of risk fell by 45 basis points quarter-on-quarter to 0.29%, while the coverage ratio of assets increased to 110.5%. The non-performing loans ratio dropped to 3.2%, aided by recoveries and enhancements to the loan portfolio. Stage one loans grew by 3.9% quarter-on-quarter, with reductions in stage two and three exposures.
Asad Ahmed, Managing Director of Financial Services at Alvarez & Marsal, stated, “Emirati banks have commenced 2025 on a solid footing. The first quarter showcased strong momentum for the sector compared to the last quarter of the previous year, with substantial growth in loans and deposits. Profitability maintained its resilience, supported by increased fee income and a significant decline in provisions for impairment.
“Moreover, banks have experienced ongoing improvements in cost efficiency and asset quality, with reductions in cost-to-income ratios and enhanced risk metrics. This disciplined performance underscores the sector’s ability to adapt to a changing macroeconomic environment.” The ten banks covered in the report include First Abu Dhabi Bank, Emirates NBD, Abu Dhabi Commercial Bank, Dubai Islamic Bank, Mashreq, Abu Dhabi Islamic Bank, Dubai Commercial Bank, Fujairah National Bank, Ras Al Khaimah National Bank, and Sharjah Islamic Bank.