Leading global professional services firm Alvarez & Marsal (A&M) has released its latest edition of the United Arab Emirates (UAE) Banking Pulse, covering Q1 2025. The report analyses the performance of the UAE’s 10 largest listed banks, showing a strong start to the year marked by enhanced cost efficiency, rising non-interest income, and renewed M&A activity.
Aggregate net income rose 8.4 percent quarter-on-quarter to AED 22.2 billion, driven by a significant 59.3 percent QoQ reduction in impairment charges and an 18 percent QoQ rise in net fee and commission income. Despite a 2.1 percent decline in net interest income (NII), profitability improved across key ratios: return on equity (RoE) climbed to 18.6 percent, and return on assets (RoA) improved to 2.1 percent.
Loan growth gained momentum in Q1 2025, with net loans and advances up 3.6 percent QoQ, primarily driven by corporate and wholesale lending, which rose 5.1 percent QoQ. Deposits outpaced lending, increasing by 5.8 percent QoQ, driven by strong CASA inflows (+7.6 percent). As a result, the loan-to-deposit ratio (LDR) declined to 74.7 percent, reflecting improved sector liquidity.
Banks continued to benefit from digital transformation and disciplined cost control. Operating expenses declined 7.8 percent QoQ, driving a 234bps improvement in the cost-to-income (C/I) ratio to 28.2 percent — the lowest level in a year. This cost discipline contributed significantly to profitability, despite a flat top line.
The sector’s asset quality continued to show further improvement. The cost of risk (CoR) declined by 45 bps QoQ to 0.29%, while the coverage ratio increased to 110.5%. The non-performing loan (NPL) ratio also fell to 3.2%, driven by recoveries and a stronger loan book profile. Stage 1 loans grew 3.9% QoQ, with declines in Stage 2 and 3 exposures.
The country’s 10 largest listed banks analyzed in A&M’s UAE Banking Pulse 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).
Mr. Sam Gidoomal, Managing Director and Head of Middle East Financial Services, noted: ‘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.’
Prevailing Trends Identified for Q1 2025
- Deposits mobilization outpaced credit growth. Aggregate deposits grew by 5.8% QoQ, driven by a 7.6% QoQ increase in CASA deposits, exceeding loan growth of 3.6% QoQ. Consequently, the Loan-to-Deposit Ratio (LDR) declined 1.5 percentage points to 74.7%.
- Operating income remained broadly flat, declining marginally by 0.2% QoQ. Net interest income decreased by 2.1% QoQ, while fee and commission income rose sharply (+18% QoQ), partially offsetting pressure from interest margins.
- Net interest margin (NIM) compressed by 15bps QoQ to 2.52% due to lower yield on credit (-99bps QoQ to 10.9%) amid ongoing rate cuts. Cost of funds improved 52 bps QoQ to 3.9%, offering some margin protection.
- Cost efficiency improved significantly, with the cost-to-income (C/I) ratio falling by 234bps QoQ to 28.2% — the best level in four quarters. Aggregate operating expenses declined by 7.8% QoQ.
- Asset quality continued to strengthen. Cost of risk (CoR) dropped to 0.29% (-45bps QoQ) while the coverage ratio improved to 110.5%. The non-performing loan (NPL) ratio declined to 3.2%, indicating healthy recoveries and prudent lending practices.
- Profitability metrics improved across the board. Aggregate RoE rose by 72bps QoQ to 18.6%, and RoA increased by 10bps to 2.1%, as substantial fee income and cost control outweighed the impact of lower NII.
OVERVIEW
The table below sets out the key metrics:
| CATEGORY | METRIC | Q4 2024 | Q1 2025 |
| Size | Loans and Advances Growth (QoQ) | 2.0% | 3.6% |
| Deposits Growth (QoQ) | 1.0% | 5.8% | |
| Liquidity | Loan-to-Deposit Ratio (LDR) | 76.2% | 74.7% |
| Income & Operating Efficiency | Operating Income Growth (QoQ) | 5.1% YoY | -0.2% QoQ |
| Operating Income / Assets | 3.9% | 3.7% | |
| Non-Interest Income / Operating Income | 34.4 % | 35.7% | |
| Yield on Credit (YoC) | 11.9% | 10.9% | |
| Cost of Funds (CoF) | 4.4% | 3.9% | |
| Net Interest Margin (NIM) | 2.67% | 2.52% | |
| Cost-to-Income Ratio (C/I) | 30.5 % | 28.2% | |
| Risk | Coverage Ratio | 104.0% | 110.5% |
| Cost of Risk (CoR) | 0.74% | 0.29% | |
| Profitability | Return on Equity (RoE) | 17.9% | 18.6% |
| Return on Assets (RoA) | 2.0 % | 2.1% | |
| Return on Risk-Weighted Assets (RoRWA) | 3.1% | 3.3% | |
| Capital | Capital Adequacy Ratio (CAR) | 17.1% | 16.6% |
Source: Financial statements, investor presentations, A&M analysis
Mr. Asad Ahmed, A&M Managing Director, Financial Services, commented: ‘UAE banks have entered 2025 on solid footing. 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 continued to see 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.’
