UAE banks saw loan growth accelerate in the third quarter of 2025, supported by a resilient domestic economy, ample liquidity and rising overseas lending, according to a new report from Fitch Ratings.
Aggregate loans increased by AED150 billion, or 6 per cent, during the quarter. Non-annualised loan growth for the first nine months of the year reached 15 per cent, equivalent to AED330 billion, surpassing the 11 per cent full-year rise in 2024.
Much of this growth was driven by overseas activity, with combined international lending at First Abu Dhabi Bank, Emirates NBD and Abu Dhabi Commercial Bank up by around AED90 billion in the first nine months of 2025, accounting for roughly a quarter of total sector expansion.
Fitch expects international operations at the largest UAE lenders to continue growing into 2026, supported by strong demand from Saudi Arabian borrowers. Tighter liquidity conditions in the Kingdom, where credit expansion continues to outpace deposit growth, are prompting more borrowers to turn to UAE banks for funding.
Asset quality continued to improve. Impaired loans fell by AED4 billion in the third quarter and by AED9 billion since the end of 2024, aided by write-offs, bad-debt sales and recoveries. The impaired loans ratio dropped to 3.1 per cent at the end of the quarter, down from 3.5 per cent in the previous quarter and 3.9 per cent at the end of 2024. Total loan loss reserves covered impaired loans by 104 per cent, while the average cost of risk was 40 basis points.
Profitability remained strong despite a slight softening in margins. The average sector net interest margin (NIM) fell to 2.9 per cent in the first nine months of 2025, compared with 3 per cent in 2024, reflecting earlier rate cuts and increased competition for deposits. Fitch expects NIMs to decline further in 2026, stabilising between 2.5 per cent and 2.7 per cent over the longer term.
Nevertheless, the sector’s return on average equity reached 19 per cent, supported by low impairment charges that consumed only 5 per cent of pre-impairment operating profit, a record low. Abu Dhabi Islamic Bank reported the highest return among Fitch-rated institutions at 30 per cent.
Sector deposits rose by 13 per cent in the first nine months of 2025, slightly lagging loan growth, lifting the loans-to-deposits ratio to 80.2 per cent. Capitalisation remains solid, with an average core Tier 1 ratio of 13.9 per cent and total capital ratios of 16.7 per cent, which Fitch described as strong.
The figures cover Fitch-rated UAE banks excluding HSBC Bank Middle East and Commercial Bank International.
