The UAE banking sector is poised for a robust performance in 2025, driven by stabilizing interest rates and a surge in lending activities.According to Bloomberg intelligence, if the US Federal Reserve maintains fixed interest rates this year, UAE banks’ profitability is expected to rise significantly. This stability will help offset risk costs and boost revenues, with market expectations pointing to high single-digit revenue growth, up from the December consensus of 3%.
The UAE banking sector has already demonstrated resilience, with the five largest banks recording a 10% annual increase in lending by September 2024. Notably,16% of this growth came from individual loans,while institutional lending contributed 8%.Abu Dhabi Commercial Bank, as an example, saw its market share of lending rise to 16.3% in June 2024, up from 15.7% in 2023, driven by a 17% increase in individual loans and a 12% rise in corporate loans. Meanwhile, Emirates NBD reported a 16% growth in individual lending, though institutional loans grew by a more modest 7%.
Despite ongoing competition in pricing, the abundant liquidity of UAE banks has allowed them to navigate financing pressures effectively. The cost of risk is expected to normalize in 2025, reaching 80 basis points, in line with 2023 levels. This is supported by a decline in the cost of interest-bearing deposits and a 20-basis-point drop in the 3-month interbank lending rate (IBOR) during the third quarter of 2024.
The UAE’s ambitious real estate projects are also set to drive corporate lending growth. With $16 billion in projects planned over the next two years and $358 billion over five years, corporate loans are projected to grow at a compound annual rate of 6% to 8%. Major developments include Palm Jebel Ali, The Oasis by Emaar, and the expansion of Al Maktoum Airport, among others.
Key Highlights of UAE Banking Sector Performance (2024-2025)
Table of Contents
| Metric | 2024 | 2025 (Projected) |
|——————————–|————————|————————|
| Lending Growth (Annual) | 10% | High Single Digits |
| Individual Loan Growth | 16% | – |
| Institutional Loan Growth | 8% | – |
| Cost of Risk | 80 basis Points | 80 Basis Points |
| Corporate loan Growth (CAGR) | – | 6%-8% |
The UAE banking sector’s strong performance is further bolstered by its ability to adapt to global economic headwinds. As Bloomberg notes, the sector’s growth trajectory is underpinned by a combination of strategic lending practices and a favorable economic environment. With major infrastructure projects on the horizon and a stable interest rate outlook,UAE banks are well-positioned to sustain their upward momentum.For more insights into the UAE banking sector’s performance and future outlook, explore the latest reports and analyses from leading financial experts.
UAE Banking Sector Set for Strong Growth in 2025: Insights from an Expert
The UAE banking sector is on track for a robust performance in 2025,driven by stabilizing interest rates,a surge in lending activities,and ambitious real estate projects. In this exclusive interview, Sarah Thompson, Senior Editor at World Today News, sits down with Dr. Ahmed Al-Mansoori, a leading financial analyst and expert on the UAE banking sector, to discuss the key drivers behind this growth and what it means for the economy.
Stabilizing Interest Rates and Profitability
Sarah Thompson: Dr. Al-Mansoori, let’s start with the impact of stabilizing interest rates. Bloomberg Intelligence suggests that if the US Federal Reserve maintains fixed rates,UAE banks’ profitability could rise significantly. How do you see this playing out?
Dr. Ahmed Al-Mansoori: Absolutely, Sarah. Stabilizing interest rates are a game-changer for UAE banks. When rates remain steady, it reduces uncertainty and allows banks to plan their lending and investment strategies more effectively. This stability helps offset risk costs and boosts revenues. We’re already seeing market expectations shift, with revenue growth projections moving into the high single digits, up from just 3% in December. This is a clear indicator of confidence in the sector.
Lending growth: A Key Driver
Sarah Thompson: Lending growth has been a standout feature of the UAE banking sector recently. The five largest banks recorded a 10% annual increase in lending by September 2024. Can you break down were this growth is coming from?
Dr.Ahmed Al-Mansoori: Certainly. The growth is coming from both individual and institutional lending. Individual loans have been particularly strong, contributing 16% to the overall growth. This is driven by factors like increased consumer confidence and a growing appetite for personal financing. On the institutional side, we’ve seen an 8% growth, supported by corporate lending. For example, Abu Dhabi Commercial Bank saw its market share of lending rise to 16.3% in June 2024,driven by a 17% increase in individual loans and a 12% rise in corporate loans. Emirates NBD also reported a 16% growth in individual lending, though institutional loans grew by a more modest 7%.
real Estate Projects and Corporate Lending
Sarah Thompson: the UAE’s ambitious real estate projects are set to drive corporate lending growth. With $16 billion in projects planned over the next two years and $358 billion over five years, how do you see this impacting the banking sector?
Dr.Ahmed Al-Mansoori: These projects are a notable catalyst for corporate lending. Major developments like Palm Jebel Ali, The Oasis by Emaar, and the expansion of Al Maktoum Airport are not just infrastructure projects; they’re economic engines. Corporate loans are projected to grow at a compound annual rate of 6% to 8%, which is substantial. This growth will be further supported by the banks’ ability to manage financing pressures effectively, thanks to their abundant liquidity.
Cost of Risk and Liquidity
Sarah Thompson: The cost of risk is expected to normalize in 2025, reaching 80 basis points, in line with 2023 levels. How are banks managing this, and what role does liquidity play?
Dr. Ahmed Al-Mansoori: The cost of risk normalization is a positive sign. It indicates that banks are effectively managing their risk profiles. This is supported by a decline in the cost of interest-bearing deposits and a 20-basis-point drop in the 3-month interbank lending rate (IBOR) during the third quarter of 2024. The abundant liquidity in the UAE banking sector has been a key factor in navigating these pressures. It allows banks to maintain competitive pricing while still growing their loan portfolios.
Future Outlook
Sarah Thompson: what’s your overall outlook for the UAE banking sector in 2025 and beyond?
Dr. Ahmed Al-Mansoori: The outlook is very positive.The sector’s growth trajectory is underpinned by strategic lending practices, a favorable economic habitat, and major infrastructure projects. With stabilizing interest rates and strong lending growth, UAE banks are well-positioned to sustain their upward momentum. I expect to see continued resilience and adaptability, even in the face of global economic headwinds.
