The UAE’s 10 largest listed banks booked a combined net income of AED 22.2 bn in 2Q 2025, broadly flat from the previous quarter as a sharp rise in impairments offset stronger lending and operating income, according to Alvarez and Marsal’s UAE Banking Pulse report (pdf). Still, banks saw stable profitability, with a 4.1% quarterly rise in interest income, and robust activity from real estate segments.

REMEMBER- The Central Bank of the UAE left rates unchanged throughout 2Q, holding its base rate at 4.4% for a fifth straight meeting after cutting by 50 bps last September and by 25 bps each in November and December, in step with the US Federal Reserve. It only shifted earlier this month, trimming rates by 25 bps to 4.15% following the Fed’s latest move.

Operating income rose 3.9% q-o-q. Net interest income edged up 1.3%, while other operating income jumped 19%. Fee and commission income dipped 4.6%, softening the top line.

Impairment charges surged 81% q-o-q to AED 2.9 bn, lifting the sector’s cost of risk to 0.51% from 0.29% in 1Q. The step-up in provisioning was another key drag on bottom-line growth, with operating expenses also rising by 1.6% q-o-q.

Lending momentum accelerated: Net loans and advances grew 5% q-o-q (vs. 3.6% in 1Q), led by corporate and wholesale (+6.9%) and retail (+4.4%). Abu Dhabi Islamic Bank (Adib), Dubai Islamic Bank (DIB), and our friends at Mashreq logged the fastest loan growth among major peers.

Funding expansion cooled: Deposits rose 2.8% q-o-q as both current and savings account growth slowed and time deposits contracted, pushing the loan-to-deposit ratio up 156 bps to 76.2% as lending outpaced deposit mobilization.

Margins compressed despite the pickup in lending. The aggregate net interest margin fell 9 bps to 2.43% as earlier rate cuts filtered through. Yield on credit and cost of funds were broadly stable on a quarterly basis.

Efficiency improved: The cost-to-income ratio fell 64 bps to 27.5% as income growth outpaced a 1.6% rise in expenses. Profitability ratios held up, with return on equity ticking up to 18.9% and return on assets easing slightly to 2.0%.

Asset quality strengthened: The sector-wide non-performing loan ratio fell 32 bps to 2.9%, while coverage improved nearly 100 bps to 111.1%. Stage 3 loans declined 5.1% q-o-q, led by sharper drops at First Abu Dhabi Bank (FAB) and Abu Dhabi Commercial Bank (ADCB).

A&M remains optimistic: The consultancy said UAE banks are well-positioned to navigate further rate cuts and macroeconomic headwinds, pointing to strong capital buffers, improved cost discipline, and healthier loan books. “UAE banks entered 2H 2025 from a position of strength,” A&M said.

The 10 largest banks by assets analyzed by the report are FAB (AED 1.3 tn), Emirates NBD (AED 1.1 tn), ADCB (AED 718.5 bn), DIB (AED 373.5 bn), our friends at Mashreq (AED 293.6 bn), Adib (AED 260.4 bn), Commercial Bank of Dubai (AED 150.6 bn), Rakbank (AED 95 bn), Sharjah Islamic Bank (AED 84.7 bn), and National Bank of Fujairah (AED 64.3 bn).

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