The earnings growth momentum for UAE-listed banks will continue in 2025, supported by strong government support and healthy capital position amid expected monetary policy tightening, consultancy firm Alvarez & Marsal (A&M) has said.

Aggregate earnings increased by eight percent year-on-year (YoY) in 2024 as annual impairment charges declined 26.8 percent due to recoveries and lower write downs. However, return on equity and return on assets fell by 87 basis points (bps) and six bps last year due to lower net profitability.

“Although net profitability has seen some pressure, the overall outlook remains positive,” said Asad Ahmed, Managing Director, Financial Services, A&M. 

He said that rate cuts by the Central Bank of the UAE have commenced as anticipated, aligning with the US Federal Reserve’s actions. 

“These cuts, coupled with robust economic growth driven by consumer spending, tourism, and construction, positions UAE banks well for continued earnings growth into 2025,” Ahmed stated.

Lending growth of the UAE banks accelerated to nearly 13 percent YoY, driven by retail loans surging 20 percent YoY.  

Deposit mobilisation remained healthy at 11 percent, driven by time deposits rising 11 percent YoY, which increased on the back of a higher interest rates environment. However, current account savings account (CASA) deposits improved moderately by 8% YoY. 

“Despite a relatively high-interest environment, UAE banks have maintained healthy deposit mobilisation and demonstrated strong cost efficiency and asset quality,”  Ahmed said.

Aggregate operating income of the banks rose by 11 percent thanks to robust growth in fees and commission income. Net interest margin (NIM) declined marginally by 12 bps to 2.7 percent amid falling interest rates. 

The banks continued to focus on cost efficiency and asset quality, with the cost-of-risk ratio falling to a decade-low of 0.5 percent, Ahmed said.

The findings are based on an analysis of 10 listed banks, mainly First Abu Dhabi Bank, Emirates NBD, Abu Dhabi Commercial Bank, Dubai Islamic Bank, Mashreq Bank, Abu Dhabi Islamic Bank, Commercial Bank of Dubai, National Bank of Fujairah, National Bank of Ras Al-Khaimah and Sharjah Islamic Bank. 

(Editing by Seban Scaria seban.scaria@lseg.com)