Today's Edition
A. SREENIVASA REDDY (ABU DHABI)
UAE banks recorded their highest-ever annual profits in 2024, with a total net income of Dh80 billion, up from Dh76 billion in 2023, according to a report from Fitch Ratings. This growth was driven by strong lending activity, a stable operating environment, and robust liquidity conditions in the banking sector, the report said.
The return on average equity (ROAE) reached 19.1%, a record high despite the impact of corporate tax introduced in mid-2023, the report added.
The impressive 11% annual lending growth, up from 7.7% in 2023, supported profit expansion. Fitch forecasts lending growth of about 9% in 2025, reflecting continued confidence in the UAE's financial sector.
Several banks achieved exceptional profitability, with Emirates NBD, Dubai Islamic Bank, Commercial Bank of Dubai, and Abu Dhabi Islamic Bank reporting ROAE above 20%. Mashreqbank led the sector with a 29% ROAE, followed closely by Abu Dhabi Islamic Bank at 28%. Pre-tax ROAE for the sector rose to 22% in 2024, up from 20% in 2023.
The Fitch Ratings excluded HSBC Middle East, Al Masraf Bank and Bank of Sharjah since they had not published their 2024 full-year accounts at the time of this commentary.
Net interest margins declined slightly by 10 basis points (bp) but remained strong at 3.1%. The cost of risk improved significantly, dropping to 45bp in 2024, compared to 70bp in 2023. This trend is expected to continue in 2025, with a projected range of 40bp–50bp, provided economic conditions remain stable.
The sector's capital position remained strong, with a common equity Tier 1 ratio of 13.7%, a Tier 1 ratio of 15.6%, and a total capital adequacy ratio of 17.1% at end-2024. Despite a 30bp–50bp decline in capital ratios in Q4 due to dividend payments, these levels are expected to remain stable in 2025.
Deposits grew in line with loans, increasing by 10.5% in 2024, with the sector's loan-to-deposit ratio standing at 79% at year-end, reflecting strong liquidity conditions.
While annual profits hit a record, Q4 2024 lending growth slowed to 1.7%, down from 3.3% in Q3, largely due to loan sales, write-offs, and reduced lending by large banks. First Abu Dhabi Bank’s loan balance remained unchanged, while Emirates NBD grew by only 0.8%. However, sector-wide net income remained steady at Dh20 billion in Q4, matching Q3 levels.
Impaired loan balances fell by Dh12 billion over the year, with Dh9 billion in reductions occurring in Q4. This decline, driven by loan sales, write-offs, and recoveries, contributed to an improvement in the sector's impaired loan ratio, which fell from 5.1% at end-2023 to 4% at end-2024.
Fitch anticipates that UAE banks will strengthen their recovery functions, following the introduction of credit risk management standards by the UAE Central Bank in Q4 2024. The sector is expected to see more write-offs and bad debt sales in 2025 and 2026, ensuring that impaired loan ratios remain below the central bank’s 5% target.
