UAE banks spur GCC profit surge with $639.6m Q1 growth
This robust performance contributed to the GCC banking sector's record-high net profits of $15.6 billion, reflecting a 7.1 per cent quarter-on-quarter (q-o-q) and 8.6 per cent year-on-year (y-o-y) growth.
Despite a decline in net interest income, UAE banks leveraged higher non-interest income, lower operating expenses, and a sharp seasonal drop in impairments to drive this growth, underscoring the sector's resilience amid evolving economic conditions, analysts at Kamco Invest said.
The UAE's banking sector benefited from a dynamic economic backdrop, with outstanding credit facilities surging 24.1 per cent y-o-y in February 2025, outpacing Saudi Arabia's 16.3 per cent growth, as per central bank data. This lending boom, driven by a strong project pipeline and resilient non-oil sector growth, saw net loans in the GCC rise 4.1 per cent q-o-q to $2.2 trillion, the highest in 15 months.
Financial sector experts said amid tighter liquidity and shifting deposit trends faced by the GCC banking sector, UAE banks are well-positioned to capitalise on regional opportunities, particularly in project finance and real estate. With a strong economic foundation and strategic lending, the UAE continues to set the pace for banking excellence in the region, driving sustainable growth in 2025, they pointed out.
UAE-listed banks contributed $20.1 billion to this growth, a 3.2 per cent q-o-q increase, reflecting robust demand across sectors like real estate, construction, and services. However, aggregate contract awards in the GCC dipped 26.8 per cent y-o-y to $52.4 billion, though the UAE and Kuwait bucked the trend with healthy growth.
Despite a 1.7 per cent q-o-q decline in GCC net interest income to $22.8 billion, driven by rate cuts in the second half of 2024, UAE banks mitigated the impact through diversified revenue streams. The aggregate yield on credit in the GCC fell to 4.16 per cent from 4.21 per cent in Q4-2024, reflecting lower interest rates. UAE banks, however, maintained revenue growth of 0.6 per cent q-o-q, reaching a share of the GCC's record $34.6 billion in banking revenues. Non-interest income, including fees from advisory services and wealth management, played a pivotal role in offsetting the decline in interest-based earnings.
Customer deposits in the UAE surged to $903.8 billion, a 6.7 per cent q-o-q increase, outpacing the GCC's 5.1 per cent growth to $2.65 trillion. This deposit growth, driven by financial market volatility, bolstered liquidity but led to a decline in the loan-to-deposit ratio to 67.3 per cent ---- the lowest in the GCC --- down 220 basis points from Q4-2024. This shift reflects improved asset utilisation and a strategic pivot towards high-yield lending, with UAE banks increasingly financing projects in Saudi Arabia to support yields, according to Bloomberg.
The UAE's economic vitality is evident in its manufacturing activity, with a PMI of 54.0 points in March 2025, slightly below Saudi Arabia's 58.1 but ahead of Qatar's 52.0 and Kuwait's 52.3, per Bloomberg's Markit Whole Economy Surveys. Dubai's PMI stood at 53.2, signaling steady growth driven by new orders and output. This aligns with the UAE's non-oil sector expansion, which supports lending growth in sectors like real estate (up 2.5 per cent q-o-q in Kuwait, a comparable market) and construction.
While Saudi banks led in lending growth with a 5.5 per cent q-o-q increase to $801.5 billion, the UAE's strategic focus on diversification and high-yield opportunities positions it as a regional leader. Challenges remain, including pressure on funding costs, with GCC banking sector costs at 3.83 per cent in Q1-2025, and a decline in low-cost CASA deposits to 52 per cent from 54 per cent in Q4-2024. However, the UAE's ability to navigate these pressures through operational efficiency and non-interest income growth highlights its adaptability.
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