• UAE banks post strong start to 2025 with 8.4% QoQ net income growth and improving return ratios
• Corporate and wholesale lending drive 3.6% QoQ increase in loans; CASA-led deposits rise 5.8% QoQ
• Cost-to-income ratio improves to 28.2% as operating expenses decline 7.8% QoQ
• Strategic M&A resumes: Emirates NBD moves to fully acquire Emirates Islamic Bank and eyes regional expansion

Dubai – 11th June, 2025 – 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 meaningfully to profitability despite a flat topline.

The sector’s asset quality showed further improvement. The cost of risk (CoR) declined by 45bps QoQ to 0.29%, while the coverage ratio increased to 110.5%. The non-performing loan (NPL) ratio also declined 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

1. 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%.
2. 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.
3. 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 52bps QoQ to 3.9%, offering some margin protection.
4. Cost efficiency improved significantly, with 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.
5. 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%, reflecting healthy recoveries and prudent lending.
6. Profitability metrics improved across the board. Aggregate RoE rose by 72bps QoQ to 18.6%, and RoA increased by 10bps to 2.1%, as strong fee income and cost control outweighed the impact of lower NII.

OVERVIEW

The table below sets out the key metrics:

Source: Financial statements, investor presentations, A&M analysis

Mr. Asad Ahmed, A&M Managing Director, Financial Services, commented: ‘Q1’25 saw mounting pressures in banks as Net Interest Margin (NIM) fell to 2.5 percent due to a sharp decline in loan yields. However, a decline in the Cost of Funds (CoF) to 3.9 percent helped offset some of the impact. Overall operational efficiency improved, with the cost-to-income ratio dropping to 28.2 percent, leading to an 8.4 percent rise in net income to AED 22.2 billion.

'Despite flat operating income and the decline in Net Interest Income (NII) due to prior rate cuts, the sector remained relatively resilient, supported by efficiency gains and healthy balance sheet growth. Overall, the Q1’25 pulse reflects a positive trajectory for Middle East banks, marked by solid profitability, expanding loan books, and improving return ratios, setting a strong tone for the year ahead.’ 

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ENDS

Notes to editors:

Methodology:

Alvarez & Marsal’s UAE Banking Pulse examines the quarterly performance of the 10 largest listed banks in the UAE, based on total assets. The Q1 2025 edition compares key performance indicators against full-year FY 2024 results, offering insights into how momentum and metrics are evolving into the new year.

The analysis is based on 16 distinct metrics grouped into five performance categories: size, liquidity, income & efficiency, risk, and profitability. These include growth in loans and deposits, cost-to-income ratios, yield on credit, net interest margins, cost of risk, and return ratios. All data is sourced from publicly available financial statements and investor presentations.

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).

This report also incorporates qualitative developments including M&A activity, digital transformation initiatives, and regulatory updates that shape the strategic landscape for UAE banks.

About Alvarez & Marsal 

Founded in 1983, Alvarez & Marsal is a leading global professional services firm. Renowned for its leadership, action and results, Alvarez & Marsal provides advisory, business performance improvement and turnaround management services, delivering practical solutions to address clients' unique challenges. With a world-wide network of experienced operators, world-class consultants, former regulators and industry authorities, Alvarez & Marsal helps corporates, boards, private equity firms, law firms and government agencies drive transformation, mitigate risk and unlock value at every stage of growth.

To learn more, visit: AlvarezandMarsal.com.