MAYS IBRAHIM (ABU DHABI)
The five largest banks in the UAE reported a combined net profit of Dh38.1 billion in the first half of 2026, up 7.8% from a year earlier, despite tighter margins and a sharp increase in loan-loss provisions, according to Moody’s Ratings.
First Abu Dhabi Bank, Emirates NBD Bank, Abu Dhabi Commercial Bank, Dubai Islamic Bank and Mashreq Bank account for around 79% of the UAE’s banking system assets. Their combined assets rose 14% year-on-year to about Dh4.35 trillion in H1 2026.
Moody’s said profit growth was supported by solid net interest income, sustained fee and commission growth, and robust treasury and trading revenue.
“These factors more than offset higher operating expenses and increased provisioning charges,” the report said.
Combined net interest income rose 11% year on year to Dh46.8 billion, driven primarily by strong balance-sheet growth, and sustained lending opportunities in the UAE and regional markets.
Average interest-earning assets increased 18%, while asset yields declined to 6.1% from 6.8% following the CBUAE's rate cuts in the second half of 2025.
The banks also benefited from stronger deposits, with customer deposits at the five lenders growing 16% year-on-year during the first half.
Lower benchmark rates and a sizeable base of low-cost current and savings account deposits helped reduce the aggregate cost of funds to 3.5% from 3.9%.
Non-interest income increased 12% to Dh26 billion, supported by an 18% increase in fee and commission income from trade, finance, card, wealth management and transaction banking.
“Trading and treasury-related revenue also remained strong as geopolitical-induced market volatility and increased customer hedging boosted foreign exchange, derivatives and capital markets income,” the report noted.
However, profitability metrics weakened. The combined annualised return on assets fell to about 1.8% from 1.9% a year earlier, reflecting lower asset yields and higher provisioning charges amid weaker economic activity linked to the Middle East conflict.
Loan-loss provisions increased nearly 60% to Dh5.6 billion from Dh3.5 billion in H1 2025. Moody’s said much of the increase reflected additional IFRS 9 expected-credit-loss overlays as banks adopted a more cautious approach to geopolitical risks, rather than a deterioration in underlying asset quality.
Despite the higher provisions, non-performing loan ratios remained relatively contained, ranging from 0.9% at Mashreq to 2.4% at Dubai Islamic Bank.
Regulatory loan deferrals were also negligible, at less than 0.3% of total banking-system loans as of May 2026.
Operating efficiency remained a strength, with expenses rising 11% to about Dh19.9 billion while the combined cost-to-income ratio held broadly stable at 27.4%.
Moody’s said the efficiency levels compare favourably with most international banking peers.
For the remainder of 2026, Moody’s expects UAE banks’ profitability to remain sound, supported by continued loan growth and the country’s multiyear capital expenditure cycle.
However, banks are expected to lend more selectively, while fee income could moderate as weaker trade, wealth-management, and deal activity weighs on non-funded revenue.
Credit costs are expected to remain elevated as banks continue to build provisions ahead of potential asset-quality deterioration stemming from the ongoing regional conflict.