E-Paper
Sign In
UAE leads resilience of the banking sector in the GCC
Non-oil GDP, which contributed 74% to the national economy in 2024, is projected to grow by 4.5% in 2025
- PUBLISHED: Thu 20 Mar 2025, 5:41 PM
The UAE’s banking sector is poised to lead regional resilience in 2025, bolstered by thriving non-oil economic momentum, record-breaking infrastructure investments, and strategic digital transformation.
As the GCC projects 3.5 per cent GDP growth this year, the UAE stands out with non-oil sectors forecast to expand by 4.2 per cent, outpacing regional peers and consolidating its role as a hub for financial innovation and cross-border investment, according to the EY GCC Banking Sector Outlook 2024.
Recommended For You
The UAE’s relentless economic diversification is paying dividends. Non-oil GDP, which contributed 74 per cent to the national economy in 2024, is projected to grow by 4.5 per cent in 2025, driven by manufacturing, renewable energy, tourism, and fintech. Mega-projects like the Dubai Urban Tech District, Abu Dhabi’s Masdar City expansion, and the UAE’s $23 billion commitment to sustainable infrastructure under COP28 pledges are creating a robust pipeline for corporate lending.
The UAE Central Bank reports a 12 per cent year-on-year increase in credit facilities to businesses in Q4 2024, with small and medium enterprises (SMEs) securing 18 per cent more loans than in 2023.
The EY report noted that banks in the UAE are anticipated to maintain robust growth in their lending activities, bolstered by relaxed monetary policies and a favorable economic environment. Further, growth in deposits consistently outpaced lending, supported by corporate and retail segments. Asset quality will remain strong, as the banks capitalized on high profits to provision for legacy loans. Credit demand and reduced borrowing costs are expected to boost credit growth during 2025.
“As we go into the first quarter of 2025, the GCC banking industry should remain strong due to considerable capital cushions, healthy asset quality indicators and adequate profitability. Furthermore, resilient economies, the region’s economic diversification efforts and enabling policies will support higher consumption and investment, further boosting the sector’s performance,” said Mayur Pau, EY Mena financial services leader.
With digital adoption rates at 92 per cent and green financing initiatives accelerating, the UAE’s banks are not just regional leaders — they’re setting global benchmarks, analysts said.
Banks saw deposits surge by 9.0 per cent in 2024, outpacing the GCC average of 6.5 per cent, according to Central Bank data. This liquidity cushion, combined with a non-performing loan (NPL) ratio of just 4.1 per cent (below the GCC’s 4.8 per cent), underscores sector stability. Analysts attribute this to aggressive provisioning during 2023’s high-profit cycle, with UAE lenders allocating 25 per cent more capital to buffer against legacy risks than regional peers.
Lower borrowing costs are further stimulating demand. Following the US Federal Reserve’s 50 bps rate cut in late 2024, UAE banks reduced lending rates by 35–40 bps, sparking a 15 per cent quarterly spike in mortgage applications and a 20 per cent rise in corporate credit lines. Emirates NBD and First Abu Dhabi Bank (FAB), which hold 45 per cent of UAE banking assets, reported net profit jumps of 22 per cent and 18 per cent, respectively, in 2024, fuelled by fee income from wealth management and IPO underwriting.
The UAE’s $50 billion infrastructure pipeline for Expo City Dubai, rail network expansions, and solar megaprojects like Al Dhafra’s 2 GW plant is reshaping lending portfolios. Project financing accounted for 34 per cent of UAE bank loan books in 2024, up from 28 per cent in 2023. Green financing is also surging, with sustainable loans hitting $11 billion in 2024—a 200 per cent increase from 2022—as banks align with the UAE Net Zero 2050 Strategy.
With 80 per cent of UAE customers now using digital banking weekly, lenders are investing heavily in AI and blockchain. Emirates Islamic Bank’s AI-driven wealth platform saw a 300 per cent user increase in 2024, while Mashreq’s neo-bank launch in Saudi Arabia underscores UAE fintech’s regional ambitions. The Central Bank’s Digital Dirham pilot, involving 23 financial institutions, positions the UAE as a CBDC frontrunner.
Regulatory reforms are amplifying competitiveness. The UAE’s adoption of open banking frameworks in 2023 spurred a 40 per cent rise in fintech partnerships, with API-driven services generating $650 million in new revenue for banks last year.
Despite optimism, rising geopolitical risks and global inflation fluctuations pose challenges. However, UAE banks’ foreign assets, which grew to $210 billion in 2024 (+15 per cent YoY), provide a buffer. Pau emphasizes agility: “Banks must embed GenAI into risk models and double down on sustainability reporting to retain investor confidence.”
With Dubai’s DIFC fintech ecosystem now hosting more than 1200 companies and Abu Dhabi Global Market’s (ADGM) assets under management recording 245 per cent surge in 2024, the UAE is primed to dominate GCC banking’s next chapter—transcending oil, embracing innovation, and financing tomorrow’s economies.