The United Arab Emirates banking industry has demonstrated exceptional financial performance during the third quarter of 2025, significantly outpacing regional competitors through a combination of strategic initiatives and favorable economic conditions. According to the latest UAE Banking Pulse report from global consulting firm Alvarez & Marsal, the sector’s remarkable growth trajectory has been fueled by expanding loan portfolios, resilient profit margins, and substantial digital transformation investments.
Macroeconomic foundations have strengthened considerably, with the International Monetary Fund revising upward the UAE’s real GDP growth forecast to 4.8% for fiscal year 2025. This optimistic economic backdrop has facilitated substantial banking sector expansion, evidenced by a 6.5% quarter-on-quarter increase in aggregate net loans and advances alongside a 4.3% growth in deposits. The loan-to-deposit ratio climbed to 77.8%, indicating vigorous credit demand relative to funding growth.
Despite two interest rate reductions implemented by the US Federal Reserve and the Central Bank of the UAE, financial institutions successfully maintained margin stability through disciplined asset repricing strategies. Net interest margin improved marginally to 2.45% from 2.43% in the previous quarter, while net interest income surged 5% quarter-on-quarter to AED 26.5 billion. Fee and commission income accelerated by 7.3%, highlighting effective revenue diversification across the sector.
Operational income reached AED 41.9 billion, representing a 3% quarterly increase, though moderating from the 5% growth recorded in Q2. Net income demonstrated robust health with a 4.3% quarterly improvement to AED 23.6 billion, supported by reduced impairment charges and tax expenses. Emirates NBD emerged as a particularly strong performer, delivering 7% growth in net interest income and 6.9% expansion in fee income.
Performance metrics showed notable improvement with return on equity climbing 25 basis points to 19.6% while return on assets remained stable at 2.1%. Capital adequacy ratios strengthened to 16.6%, providing enhanced buffers against potential market volatility.
Credit expansion displayed broad-based strength across segments. Corporate and wholesale lending, representing 57.5% of total portfolios, expanded 7.5% quarter-on-quarter. Retail loans grew 4.4%, while government lending rebounded dramatically with 8.1% growth. Emirates NBD led sector lending with a 10.7% increase in net loans, driven by exceptional corporate banking performance.
Funding dynamics shifted toward time deposits, which surged 9.6% quarter-on-quarter as depositors sought to lock in higher rates, even as current and savings account balances experienced slight contraction. RAKBANK achieved the highest deposit growth at 7.4%, with Dubai Islamic Bank contributing significantly through a 6.4% increase.
Asset quality metrics showed substantial improvement as the non-performing loan ratio declined to 2.6% from 2.9% in Q2. Coverage improved to 115.2% while the cost of risk eased to 0.45%, supported by a 6.9% reduction in impairment charges. Stage 3 loans decreased 5.9% quarter-on-quarter, reflecting disciplined credit underwriting and enhanced risk management practices.
Strategic digital initiatives accelerated across the sector. Abu Dhabi Commercial Bank announced over 150 artificial intelligence use cases targeting AED 4 billion in value creation. Dubai Islamic Bank established a partnership with HCLTech to develop Shariah-compliant technological innovations. Abu Dhabi Islamic Bank launched industry-first real-time cross-border transfers to 11 billion global endpoints, while Emirates NBD expanded its near real-time payment network to 40 countries and acquired a 60% stake in India’s RBL Bank for $3 billion.
Regulatory developments included new financial legislation extending oversight to fintech and digital assets, reinforcing governance and compliance standards across the banking ecosystem.
Investor sentiment reflected operational strength as UAE banking stocks gained approximately 30% over the past year, positioning the sector among global top performers. Attractive valuations persisted with banks trading at an average price-to-earnings ratio of 8.5x and price-to-book of 1.67x, supported by high-teens returns and robust capital positions.
The outlook for 2026 remains broadly positive, with analysts anticipating continued balance sheet expansion driven by strong non-hydrocarbon growth and sustained credit demand. While margin pressure may persist amid potential further rate cuts, banks are positioned to offset compression through fee income growth, digital innovation, and cost efficiencies from AI implementation. Asset quality is expected to remain stable supported by prudent risk management and substantial provisioning. With capital buffers at healthy levels and investor confidence sustained by attractive valuations, the sector is poised to maintain its regional outperformer status, though global liquidity trends and geopolitical risks warrant ongoing monitoring.