UAE Banking Sector Starts 2025 Strongly, Alvarez & Marsal Reports
Alvarez & Marsal's Q1 2025 UAE Banking Pulse report shows United Arab Emirates banks had a robust start to the year, with net income growing 8.4% and cost efficiency significantly improving.
Global professional services firm Alvarez & Marsal has released its Q1 2025 UAE Banking Pulse report. The analysis of the UAE's 10 largest listed banks reveals a strong start to the year, marked by enhanced cost efficiency, rising non-interest income, and renewed mergers and acquisitions activity.
Aggregate net income increased by 8.4% quarter-on-quarter to AED 22.2 billion. This was supported by a substantial 59.3% reduction in impairment charges and an 18% rise in net fee and commission income. Despite a 2.1% decline in net interest income, profitability improved, with return on equity (RoE) reaching 18.6% and return on assets (RoA) improving to 2.1%.
Loan growth accelerated in the first quarter, with net loans and advances up 3.6% QoQ, primarily driven by corporate and wholesale lending. Deposits outpaced lending, rising 5.8% QoQ, fuelled by strong CASA inflows. Consequently, the loan-to-deposit ratio (LDR) decreased to 74.7%, indicating improved sector liquidity.
Banks continued to leverage digital transformation and disciplined cost management. Operating expenses declined by 7.8% QoQ, driving a 234 basis point improvement in the cost-to-income (C/I) ratio to 28.2%, its lowest in a year. This cost discipline contributed significantly to profitability despite flat top-line revenues.
Key trends identified include deposit mobilization outpacing credit growth, operating income remaining broadly flat, net interest margin compression, and significant improvements in cost efficiency. The sector's asset quality further strengthened, with cost of risk declining and coverage ratios improving.