UAE Banks Poised for Continued Earnings Growth Amid Monetary Tightening

The United Arab Emirates’ banking sector is set to maintain its earnings growth trajectory into 2025, bolstered by robust government support and strong capital positions, even as monetary policy tightens. Consultancy firm Alvarez & Marsal reports that aggregate earnings for UAE-listed banks increased by 8% year-on-year in 2024, primarily due to a 26.8% decline in annual impairment charges, attributed to recoveries and reduced write-downs. However, return on equity and return on assets experienced declines of 87 basis points and 6 basis points, respectively, due to decreased net profitability.

Asad Ahmed, Managing Director of Financial Services at A&M, noted that despite pressures on net profitability, the overall outlook for UAE banks remains positive. He highlighted that continued lending growth, especially in retail loans, alongside healthy deposit mobilization and strong cost efficiency, positions UAE banks well for sustained earnings growth into 2025. Ahmed also pointed out that the Central Bank of the UAE has commenced rate cuts in alignment with the U.S. Federal Reserve’s actions, which, coupled with robust economic growth driven by consumer spending, tourism, and construction, further supports this positive outlook.

In 2024, UAE banks achieved their highest profitability, with the sector’s average operating profit estimated at 3.4% of risk-weighted assets, up from 3.2% in 2023. This performance was underpinned by high interest rates and healthy liquidity, as reported by Fitch Ratings. The CBUAE’s total assets reached approximately AED 896 billion in 2024, reflecting the central bank’s pivotal role in fostering monetary and financial stability.

Leading banks in the UAE have reported strong financial results for 2024. Emirates NBD’s profit before tax climbed to a record AED 27.1 billion, driven by regional expansion and an enhanced wealth management franchise. The bank’s total income grew to over AED 44 billion, with AED 160 billion in new loans provided to customers, resulting in a 16% increase in assets. Emirates NBD Capital also generated its highest-ever revenue during its busiest year for transactions.

First Abu Dhabi Bank reported a 9% increase in net loans, advances, and Islamic financing, totaling AED 529 billion in 2024. Deposits grew by 3% to AED 782 billion, and total assets rose by 4% to AED 1.21 trillion. Dubai Islamic Bank’s total income increased by 15.9% year-on-year to AED 23.34 billion, supported by a 33% growth in non-funded income. Net operating revenue grew by 10.1% to AED 12.84 billion. Mashreq Bank also delivered exceptional growth, with total operating income increasing by 24% to AED 13.4 billion, and net profit before tax rising by 12% to AED 9.9 billion.

Despite these positive developments, some banks faced challenges. Emirates NBD reported a stable net profit of AED 5.2 billion for the third quarter of 2024, mirroring the previous year’s figure and missing analysts’ expectations of AED 6 billion. This performance was due to an 8% increase in net interest income, offset by higher impairment charges and investments aimed at future growth. Non-funded income decreased by 15% to AED 3 billion.