Today's Edition
MAYS IBRAHIM (ABU DHABI)
UAE banks kicked off 2025 on a strong note, posting an 8.4% quarter-on-quarter (QoQ) increase in aggregate net income to Dh22.2 billion, according to Alvarez & Marsal (A&M) latest UAE Banking Pulse report for Q1 2025.
This surge was attributed to a 59.3% QoQ reduction in impairment charges and an 18% rise in net fee and commission income.
The report, which tracks the performance of the UAE's ten largest listed banks, indicates that the first quarter was marked by enhanced cost efficiency, a rise in non-interest income, and renewed momentum in mergers and acquisitions activity.
Despite a 2.1% dip in net interest income (NII), profitability ratios showed improvement: Return on equity (RoE) rose to 18.6%, while return on assets (RoA) increased to 2.1%.
Lending activity also gained traction, with net loans and advances rising 3.6% QoQ, driven largely by corporate and wholesale lending, which saw a 5.1% uptick.
Deposits grew at an even faster pace, climbing 5.8% due to a 7.6% jump in current and savings account (CASA) inflows. As a result, the loan-to-deposit ratio (LDR) declined to 74.7%, signalling improved sector liquidity.
Cost discipline and digital transformation efforts further strengthened banks' performance. Operating expenses dropped by 7.8% QoQ, pushing the cost-to-income (C/I) ratio down by 234 basis points to 28.2% – the lowest level in the past year.
These efficiency gains contributed meaningfully to overall profitability, even as topline revenue remained mostly flat.
Asset quality also showed significant improvement. The cost of risk (CoR) fell by 45 basis points to 0.29%, while the coverage ratio rose to 110.5%.
The non-performing loan (NPL) ratio declined to 3.2%, supported by stronger recoveries and a healthier loan book. Stage 1 loans increased 3.9% QoQ, while Stage 2 and 3 exposures decreased.
Other key trends in Q1 include deposits mobilisation outpacing 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. As a result, 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%, while fee and commission income rose sharply by 18%, partially offsetting pressure from interest margins.
Net interest margin (NIM) compressed by 15bps QoQ to 2.52% due to lower yield on credit, which dropped by 99 basis points QoQ to 10.9% amid ongoing rate cuts. Cost of funds improved by 52 basis points QoQ to 3.9%, offering some margin protection.
The banks analysed in the report 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).
