UAE Banks' Profitability Expected to Soar in H2, Moody's Forecasts

UAE's Banking Giants Post $8.7 Billion Profit Surge Despite Interest Rate Headwinds

The UAE's four largest banks have delivered a commanding financial performance in the first half of 2025, generating combined net profits of AED 32 billion ($8.7 billion) — a 6% year-on-year increase that defied three interest rate cuts since September 2024. This resilient growth, driven by surging non-funded income and operational efficiency gains, positions the Emirates as a regional banking powerhouse while global peers grapple with margin compression.

The Profit Powerhouses Leading UAE's Financial Sector

The stellar results come from the country's banking titans: First Abu Dhabi Bank, Emirates NBD, Abu Dhabi Commercial Bank, and Dubai Islamic Bank. Together, these institutions control approximately 73% of the UAE's total banking system assets, making their performance a reliable barometer for the broader financial sector's health.

According to Moody's credit rating agency, this profit growth occurred despite a challenging interest rate environment that began with cuts in September 2024, demonstrating the banks' ability to adapt their revenue strategies in real-time.

Non-Funded Income: The Secret Weapon

The standout performer was non-funded income, which skyrocketed 28% year-on-year. This dramatic surge reflects several key factors: robust market performance that boosted trading revenues, significant growth in net fees and commissions from increased banking activity, and strategic one-off gains captured during the period.

This diversification away from traditional interest-dependent revenue streams mirrors successful strategies employed by Singapore's DBS and other regional banking leaders who have built resilient business models less vulnerable to rate cycles.

Interest Income Holds Steady Despite Rate Cuts

Remarkably, net interest income still grew 6% year-on-year, while the overall net interest margin expanded to 2.4% compared to 2.5% the previous year. This relatively modest decline, despite three rate cuts, suggests UAE banks have successfully managed their asset-liability mix and maintained pricing discipline.

The performance contrasts sharply with many Western banks that have seen more dramatic margin compression during similar rate-cutting cycles, highlighting the UAE's unique position as a regional financial hub with diverse revenue opportunities.

Operational Excellence Drives Bottom-Line Growth

Efficiency improvements provided another growth engine, with the cost-to-income ratio improving to 27% from 28% in the previous year. This enhancement came despite operating expenses rising 10%, as revenue growth significantly outpaced cost increases — a hallmark of well-managed expansion.

This operational discipline reflects the maturation of UAE's banking sector, where institutions have moved beyond pure growth strategies to focus on sustainable profitability metrics that appeal to international investors.

Market Implications and Future Outlook

For Investors: The results validate the UAE banking sector's investment thesis, particularly for those seeking exposure to Middle Eastern growth while avoiding the volatility seen in other emerging markets. The strong non-funded income growth suggests these banks are successfully capitalizing on the UAE's position as a regional business hub.

For the Broader Economy: Healthy bank profits typically translate into increased lending capacity and economic stimulus. With Moody's predicting continued profit growth through the second half of 2025, this bodes well for UAE's economic expansion plans and infrastructure development.

Regional Competitive Advantage

The UAE's banking success story stands in stark contrast to regional peers facing economic headwinds. While Saudi banks navigate Vision 2030 transformation costs and Egyptian banks contend with currency pressures, UAE institutions are leveraging their strategic geographic position and diversified economy to deliver consistent returns.

As Badis Chebibla, Assistant Vice President and Analyst at Moody's, noted: the expectation is for continued net profit growth throughout 2025, even accounting for the anticipated impact of lower interest rates and higher impairment provisions. This confidence reflects the sector's fundamental strength and adaptability in an evolving financial landscape.