UAE Banking Sector 2025: A Balance of Growth and Risk Amid Economic Expansion
The UAE banking sector is poised for a transformative year in 2025, as highlighted in a recent report by Standard & Poor’s Global. Titled “Balance of Growth and Risk considering Economic Expansion,” the report underscores the resilience and adaptability of UAE banks, driven by a supportive economic surroundings and robust lending growth.
Strong Economic Foundations
Table of Contents
- UAE Banking Sector 2025: Insights on Growth, Risk, and Digital Conversion
- Strong Economic Foundations: The Backbone of Banking Growth
- Deposit Growth and Financing Stability: A Pillar of Strength
- Digital Transformation and Fintech Integration: The Future of Banking
- Real Estate and Construction: A Controlled Risk
- Future Outlook: Stability and Growth in 2025
- Key Highlights at a Glance
The UAE’s real GDP growth is expected to remain robust from 2025 to 2027, fueled by increased oil and gas production and a thriving non-oil sector. this dual-engine growth has created a fertile ground for banks to expand their lending portfolios while maintaining strong asset quality.
“We expect UAE banks to maintain stable and strong capital margins, strong financing conditions, and continued goverment support, which will support their ability to withstand economic challenges,” the report states.
Deposit Growth and Financing Stability
Over the past three years,UAE banks have seen a meaningful increase in deposits,driven by higher interest rates and a shift toward saving over spending. This trend is expected to continue in 2025, with strong deposit growth bolstering banks’ financing structures.“UAE banks’ financing structures benefit from strong core client deposit bases and limited reliance on external financing,” the report notes. As of September 30, 2024, net external assets rose to 27.2% of total domestic loans, reducing vulnerability to international capital market uncertainties.
digital Transformation and Fintech Integration
The UAE banking sector has embraced digital transformation, with the emergence of neobanks and fintech companies complementing customary banking services. The recent approval of a framework for stablecoins backed by the UAE dirham marks a significant step toward financial innovation.
“We expect neobanks and fintech companies to complement traditional banks, not replace them,” the report emphasizes, highlighting the Central Bank’s role in maintaining stability while encouraging digital advancements.
Real Estate and Construction: A Controlled Risk
The real estate sector, a cornerstone of the UAE economy, has seen prices rise over the past four years. Though, risks to banks remain limited.“Most off-plan real estate transactions are done in cash, and only 30-40% of ready sales are financed using a mortgage,” the report explains.Additionally, the banking sector’s exposure to real estate and construction decreased to 15% of the total lending book as of June 30, 2024, down from 20% in 2021.
Future Outlook: Stability and Growth
The report paints a positive picture for the UAE banking sector in 2025, with improved asset quality, strong lending growth, and sustained profitability.
“Our credit ratings for banks and distribution of future outlooks show that UAE banks are moving at a stable pace towards 2025,” the agency concludes.
Key Highlights at a Glance
| Metric | 2024 | 2025 Outlook |
|———————————|————————|————————|
| Real GDP Growth | strong | Continued Expansion |
| Non-Performing Loans | 4% of total loans | expected to Remain Low |
| Deposit Growth | Significant Increase | Continued strong Growth|
| Real Estate Exposure | 15% of lending book | Limited Risks |
| Digital Transformation | Accelerating | Enhanced Integration |
The UAE banking sector’s ability to balance growth and risk in 2025 reflects its adaptability and resilience. With strong economic fundamentals, innovative digital strategies, and controlled exposure to key sectors, UAE banks are well-positioned to navigate the challenges and opportunities ahead.
For more insights into the UAE banking sector’s growth trajectory,explore the full report here.
UAE Banking Sector 2025: Insights on Growth, Risk, and Digital Conversion
The UAE banking sector is set for a transformative year in 2025, driven by robust economic growth, digital innovation, and controlled risk exposure. A recent report by Standard & Poor’s global highlights the sector’s resilience and adaptability, emphasizing the balance between growth and risk. To delve deeper into these insights, we sat down with Dr. ahmed Al-Mansoori, a renowned banking and finance expert, to discuss the key trends shaping the UAE banking landscape in 2025.
Strong Economic Foundations: The Backbone of Banking Growth
Senior Editor: Dr. Al-Mansoori, the report highlights the UAE’s strong GDP growth, driven by both oil and non-oil sectors. How does this dual-engine growth impact the banking sector?
Dr. Ahmed Al-Mansoori: The UAE’s economic diversification has been a game-changer. With oil and gas production increasing and the non-oil sector thriving, banks are benefiting from a stable and expanding economy. This dual-engine growth provides a fertile ground for banks to expand their lending portfolios while maintaining strong asset quality. The government’s supportive policies further enhance the sector’s resilience,enabling banks to navigate economic challenges effectively.
Deposit Growth and Financing Stability: A Pillar of Strength
Senior Editor: The report mentions a significant increase in deposits over the past three years. What’s driving this trend, and how does it shape the banking sector’s future?
Dr. Ahmed al-Mansoori: Higher interest rates and a cultural shift toward saving over spending have fueled deposit growth. This trend is expected to continue in 2025, providing banks with a stable and robust financing structure. The reliance on core client deposits, rather than external financing, reduces vulnerability to international market uncertainties. As of September 2024, net external assets accounted for 27.2% of total domestic loans,showcasing the sector’s strength.
Digital Transformation and Fintech Integration: The Future of Banking
Senior Editor: Digital transformation is a key theme in the report. How are UAE banks adapting to the rise of neobanks and fintech companies?
Dr. Ahmed Al-Mansoori: UAE banks have embraced digital transformation wholeheartedly. The emergence of neobanks and fintech companies is complementing conventional banking services, not replacing them. The recent approval of a framework for stablecoins backed by the UAE dirham is a testament to the Central Bank’s commitment to innovation. This integration of digital advancements ensures that UAE banks remain competitive while maintaining financial stability.
Real Estate and Construction: A Controlled Risk
Senior Editor: The real estate sector is a cornerstone of the UAE economy. How are banks managing risks associated with this sector?
Dr. Ahmed Al-mansoori: While real estate prices have risen over the past four years, risks to banks remain limited. Most off-plan transactions are cash-based, and only 30-40% of ready sales are financed through mortgages. Additionally, the banking sector’s exposure to real estate and construction has decreased to 15% of the total lending book as of June 2024, down from 20% in 2021. This controlled exposure ensures that banks are well-positioned to handle any market fluctuations.
Future Outlook: Stability and Growth in 2025
Senior Editor: What’s your overall outlook for the UAE banking sector in 2025?
Dr. Ahmed Al-Mansoori: The outlook is highly positive. With strong economic fundamentals, innovative digital strategies, and controlled risk exposure, UAE banks are set for sustained growth and profitability. The sector’s ability to balance growth and risk reflects its adaptability and resilience. As we move into 2025, I expect UAE banks to continue leading the way in the region, setting benchmarks for others to follow.
Key Highlights at a Glance
| Metric | 2024 | 2025 Outlook |
|---|---|---|
| Real GDP Growth | Strong | Continued Expansion |
| Non-Performing Loans | 4% of total loans | Expected to Remain Low |
| Deposit Growth | Significant Increase | continued Strong Growth |
| Real Estate Exposure | 15% of lending book | Limited Risks |
| Digital Transformation | Accelerating | Enhanced Integration |
The UAE banking sector’s ability to balance growth and risk in 2025 reflects its adaptability and resilience. With strong economic fundamentals, innovative digital strategies, and controlled exposure to key sectors, UAE banks are well-positioned to navigate the challenges and opportunities ahead.
For more insights into the UAE banking sector’s growth trajectory, explore the full report here.
