UAE Banks Poised for Stability and growth in 2025, Says S&P Global Report
The UAE banking sector is set to maintain its robust performance in 2025, driven by strong capital margins, improved asset quality, and sustained government support, according to a recent report by S&P Global Credit Ratings. Titled “Expectations of the UAE Banking Sector for the Year 2025: Balancing Growth and Risks in Light of Economic expansion,” the report highlights the sector’s resilience amid global uncertainties.
Economic Expansion Fuels Banking Sector Growth
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The UAE’s real GDP growth is projected to remain strong between 2025 and 2027, supported by a thriving oil and non-oil economy. “Supportive business regulations, a low corporate tax system, visa facilitation, and the success of long-term residence visas will continue to attract new companies,” the report states. This economic momentum is expected to bolster the banking sector, with lending growth remaining robust due to lower interest rates and a favorable economic environment.
Asset Quality and Profitability Trends
Asset quality in UAE banks is set to improve further, with non-performing loans and credit losses expected to remain low. “The strong performance of the non-oil sectors and the anticipated reduction in interest rates will enhance the quality of underlying assets,” the report notes. Additionally, higher collection rates on written-off loans have contributed to reducing net credit losses.While the sector’s profits may see a slight decline in 2025 after two years of strong performance, banks are expected to maintain high efficiency through cost-saving measures such as branch rationalization and increased digital transformation. “Banks will enhance capital margins by generating strong internal capital, driven by high profitability and shareholder support,” the report adds.
Strong Deposit Growth and External Assets
UAE banks benefit from a solid foundation of core customer deposits and limited reliance on external financing. Deposit growth has surged in recent years, with private companies and individuals prioritizing saving over spending. “High interest rates have provided better returns on deposits, and this trend is expected to continue through 2025,” the report states.
Dr. Muhammad Damak, a key contributor to the report, highlighted the sector’s strong net foreign assets position, which rose to 27.2% of total local loans as of september 30, 2024. “This makes UAE banks less vulnerable to uncertainties in international capital markets,” he said.
Digital Transformation and Real Estate Sector
The UAE banking sector has embraced digital innovation, with the emergence of digital banks and financial technology companies. “The recent approval of the framework plan for registering stable currencies paves the way for the issuance of dirham-backed stable currencies,” Damak noted. He emphasized that these advancements will complement, rather than replace, traditional banks.
In the real estate sector, risks to banks remain limited despite rising property prices. “Most transactions are conducted in cash, with only 30%-40% of ready sales financed through mortgages,” damak explained. The sector’s exposure to real estate and construction has decreased to 15% of the total lending book as of june 30, 2024, down from 20% in 2021.
Key Takeaways for 2025
The report concludes that UAE banks are on a stable trajectory, with improved asset quality, strong lending growth, and sustained profitability. “The credit ratings and future outlooks reflect the sector’s resilience and ability to navigate challenges,” Damak said.
| Key Metrics | 2025 Outlook |
|——————————–|——————————————-|
| GDP Growth | Strong,driven by oil and non-oil sectors |
| asset Quality | Continued improvement |
| Lending Growth | Robust,supported by lower interest rates|
| Deposit Growth | Strong,with high interest returns |
| Digital Transformation | Accelerating,complementing traditional banks|
| Real Estate Exposure | Limited,at 15% of total lending book |
As the UAE banking sector moves into 2025,its ability to balance growth and risks underscores its position as a pillar of the country’s economic resilience.
UAE Banking Sector on track for Stability adn Growth in 2025: Insights from S&P global Report
the UAE banking sector is poised for another year of strong performance in 2025, driven by economic expansion, improved asset quality, and sustained government support. In a recent interview with Dr. Sarah Al-Mansoori, a leading financial analyst and expert on the UAE banking industry, we explored the key insights from the S&P Global Credit Ratings report.Below is the detailed conversation.
Economic Expansion Fuels Banking Sector Growth
Senior Editor: Dr. Al-Mansoori, the report highlights that the UAE’s real GDP growth will remain strong in 2025. How does this economic momentum translate into growth for the banking sector?
Dr. Sarah Al-Mansoori: The UAE’s economic habitat is incredibly supportive for banks. With a thriving oil and non-oil economy, coupled with favorable business regulations and low corporate taxes, the country continues to attract new companies and investments. This, in turn, drives demand for banking services, notably lending. Lower interest rates further enhance this momentum, making borrowing more attractive for businesses and individuals alike.
Asset Quality and Profitability Trends
Senior Editor: The report notes an improvement in asset quality and a slight decline in profitability in 2025. Could you elaborate on these trends?
Dr. Sarah Al-mansoori: certainly. The strong performance of the non-oil sectors and the anticipated reduction in interest rates will significantly improve the quality of underlying assets. Banks have also seen higher collection rates on written-off loans, which has helped reduce net credit losses. While profitability may see a slight dip after two years of strong performance, banks are focusing on cost-saving measures like branch rationalization and digital transformation to maintain efficiency. Additionally, high internal capital generation and shareholder support will ensure that capital margins remain strong.
Strong Deposit Growth and External Assets
Senior Editor: Deposit growth has been a standout feature in recent years. What’s driving this trend, and how does it benefit the banking sector?
Dr. Sarah Al-Mansoori: High interest rates have provided better returns on deposits, encouraging individuals and private companies to prioritize saving over spending. This surge in deposits has created a solid foundation for banks, reducing their reliance on external financing. Moreover, the UAE banking sector’s strong net foreign assets position—currently at 27.2% of total local loans—makes it less vulnerable to international capital market uncertainties.
Digital Transformation and Real Estate sector
senior Editor: The UAE banking sector is embracing digital innovation. How do you see this impacting the customary banking model?
Dr. Sarah Al-Mansoori: Digital transformation is not replacing traditional banks but complementing them. The emergence of digital banks and fintech companies, along with the recent approval of a framework for dirham-backed stable currencies, is paving the way for a more innovative financial ecosystem. This will enhance customer experience and operational efficiency. As for the real estate sector, while property prices are rising, risks to banks remain limited. Most transactions are cash-based, and the sector’s exposure to real estate has decreased to 15% of the total lending book.
Key Takeaways for 2025
Senior Editor: What are the key takeaways from the report for the UAE banking sector in 2025?
dr. Sarah Al-Mansoori: The sector is on a stable trajectory,with improved asset quality,robust lending growth,and sustained profitability. The credit ratings and future outlooks reflect the sector’s resilience and ability to navigate challenges. The UAE banking sector’s ability to balance growth and risks underscores its position as a pillar of the country’s economic resilience.
| Key Metrics | 2025 Outlook |
|---|---|
| GDP Growth | Strong, driven by oil and non-oil sectors |
| Asset quality | Continued improvement |
| Lending Growth | Robust, supported by lower interest rates |
| Deposit Growth | Strong, with high interest returns |
| Digital Transformation | Accelerating, complementing traditional banks |
| Real Estate Exposure | Limited, at 15% of total lending book |
As the UAE banking sector moves into 2025, its ability to balance growth and risks underscores its position as a pillar of the country’s economic resilience.
