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The UAE banking sector is poised for significant lending growth in 2025, supported by a favorable economic environment and easing monetary policies, according to S&P Global Ratings analyst Puneet Tuli.
Over the past three years, banks in the UAE have experienced a substantial increase in deposits, which will help sustain their strong growth momentum. However, Tuli noted that some external deposits may face volatility due to economic vulnerabilities.
While lending volumes are expected to expand, the sector’s profitability is projected to decline slightly in 2025 compared to its strong performance over the previous two years.
“We expect the cost of risk to remain low, and therefore, UAE banks’ profitability should remain high, albeit lower than the peak of 2023,” said Tuli.
S&P forecasts that non-performing loans and credit losses will stay low, driven by the robust performance of non-oil sectors and anticipated rate cuts, which will improve underlying asset quality.
Strong capital buffers have underpinned the resilience of the UAE banking sector, which are expected to strengthen further through robust internal capital generation, high profitability, supportive shareholders, and conservative dividend payouts typically below 50%.
As of the end of 2023, additional Tier 1 instruments accounted for 12.2% of the sector’s total adjusted capital, reflecting the strong quality of capital. Tuli highlighted that declining interest rates present an opportunity for banks to issue hybrid instruments and replace existing ones at a lower cost when their call dates arise.
The outlook for the UAE banking sector remains positive, with lending growth and capital strength set to be key drivers of its performance in the coming year.
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