���������ֳ�

���������ֳ�-Dubai/London-16 May 2025: UAE banks’ profitability remained strong in 1Q25 despite the sector average net interest margin (NIM) falling from record high levels following interest rate cuts in 2H25.

The sector average NIM declined by 10bp to 3% in 1Q25. We forecast the NIM will be stable through 2025, but that it will moderate further to 2.5%–2.7% over the next few years. However, the average annualised return on average equity was unchanged at 19%, underpinned by reduced impairment charges, which consumed a record low 5% of the banks’ pre-impairment operating profit in 1Q25 (9% in 2024). Abu Dhabi Islamic Bank (30%) and Emirates Islamic Bank (28%) had the highest return on average equity.

Lending growth (1Q25: 3.5%, non-annualised) was healthy compared to that of peers in Gulf Cooperation Council countries. Some small and medium banks grew faster than the sector average, with the highest growth ratios reported by United Arab Bank (8%), Ajman Bank and Sharjah Islamic Bank (both 7%). Nevertheless, we expect lending growth to slow later in 2025 – with full-year growth at 8%–10% – on reduced oil prices, and saturation after record growth of 11% in 2024.

Sector deposits grew faster than lending growth due to solid liquidity conditions in the UAE. Consequently, the sector average loans/deposits ratio declined by 170bp to 78.2% at end-1Q25, and banks accumulated more liquidity cushions in the form of investments in liquid securities, which have grown by 9% since end-2024. Securities accounted for 19% of total assets at end-1Q25.

The sector impaired loans balance reduced by about AED1 billion in 1Q25 and the share of impaired loans declined to the lowest point in the past 10 years, reaching 3.7% at end-March. The decline was largely driven by limited new impaired cases at most banks, but also by intensified write-offs and recoveries following the introduction of the credit risk management standards regulation by the Central Bank of the UAE in 4Q24. This tightened provisioning requirements and aims for impaired loans to remain below 5%.

The annualised cost of risk ratio (loan impairment charges/average gross loans) reduced to 20bp in 1Q25, from 45bp in 2024, on still-strong operating conditions and adequate provision coverage of already crystallised problem loans at most banks. Nevertheless, we expect the full year cost of risk will be 40bp–50bp, as some banks will need to strengthen coverage ratios, and asset quality may come under pressure later in 2025 due to still-high interest rates and lower oil prices.

Profits offset lending growth in 1Q25, keeping the average capital ratio stable. At end-1Q25, the average CET1 (13.7%), Tier 1 (15.4%) and total capital adequacy (17.1%) ratios were close to end-2024 levels, and we expect these to remain stable in 2025 as banks are likely to grow in line with internal capital generation.

Contact:
Anton Lopatin
Senior Director, Financial Institutions – Banks
+971 4 424 1225

���������ֳ� Ltd Dubai Branch
Maze Tower, 18th floor
Sheikh Zayed Road, P.O. Box 215584, Dubai, UAE

Redmond Ramsdale
Senior Director, Head of Middle East Banks Ratings
+44 20 3530 1836








Media Relations: Matthew Pearson, London, Tel: +44 20 3530 2682, Email: matthew.pearson@thefitchgroup.com

Additional information is available on


All ���������ֳ� (���������ֳ�) credit ratings are subject to certain limitations and disclaimers. Please read these limitations and disclaimers by following this link: /understandingcreditratings. In addition, the following /rating-definitions-document details ���������ֳ�'s rating definitions for each rating scale and rating categories, including definitions relating to default. Published ratings, criteria, and methodologies are available from this site at all times. ���������ֳ�'s code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance, and other relevant policies and procedures are also available from the Code of Conduct section of this site. Directors and shareholders’ relevant interests are available at /site/regulatory. ���������ֳ� may have provided another permissible or ancillary service to the rated entity or its related third parties. Details of permissible or ancillary service(s) for which the lead analyst is based in an ESMA- or FCA-registered ���������ֳ� company (or branch of such a company) can be found on the entity summary page for this issuer on the ���������ֳ� website.
In issuing and maintaining its ratings and in making other reports (including forecast information), ���������ֳ� relies on factual information it receives from issuers and underwriters and from other sources ���������ֳ� believes to be credible. ���������ֳ� conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of ���������ֳ�'s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of ���������ֳ�'s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information ���������ֳ� relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to ���������ֳ� and to the market in offering documents and other reports. In issuing its ratings and its reports, ���������ֳ� must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed.
The information in this report is provided 'as is' without any representation or warranty of any kind, and ���������ֳ� does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A ���������ֳ� rating is an opinion as to the creditworthiness of a security. This opinion and reports made by ���������ֳ� are based on established criteria and methodologies that ���������ֳ� is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of ���������ֳ� and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. ���������ֳ� is not engaged in the offer or sale of any security. All ���������ֳ� reports have shared authorship. Individuals identified in a ���������ֳ� report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a ���������ֳ� rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of ���������ֳ�. ���������ֳ� does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. ���������ֳ� receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, ���������ֳ� will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by ���������ֳ� shall not constitute a consent by ���������ֳ� to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, ���������ֳ� research may be available to electronic subscribers up to three days earlier than to print subscribers.
For Australia, New Zealand, Taiwan and South Korea only: ���������ֳ� Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by ���������ֳ� is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001.
���������ֳ�, Inc. is registered with the U.S. Securities and Exchange Commission as a Nationally Recognized Statistical Rating Organization (the 'NRSRO'). While certain of the NRSRO's credit rating subsidiaries are listed on Item 3 of Form NRSRO and as such are authorized to issue credit ratings on behalf of the NRSRO (see /site/regulatory), other credit rating subsidiaries are not listed on Form NRSRO (the 'non-NRSROs') and therefore credit ratings issued by those subsidiaries are not issued on behalf of the NRSRO. However, non-NRSRO personnel may participate in determining credit ratings issued by or on behalf of the NRSRO.

Copyright © 2025 by ���������ֳ�, Inc., ���������ֳ� Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved.