UAE Banking Sector in 2025: Performance, Key Structural Shifts

1. Macro and sector snapshot

The UAE economy is estimated to have grown around 4,9-5,0% in 2025, driven mainly by non‑oil sectors such as trade, tourism, construction and financial services, with additional support from a faster‑than‑expected easing of OPEC+ oil production cuts.
Against this backdrop, UAE banks delivered a record year in terms of balance‑sheet growth and earnings, supported by:
- High interest‑rate environment (still near cycle peaks for most of 2025)
- Double‑digit credit expansion
- Strong deposit inflows and ample liquidity

Bottom line: 2025 was a growth year, not a repair year. The system expanded aggressively while maintaining strong capital and improving asset quality.

2. Balance sheet growth and liquidity

Scale of the system

Total banking sector assets rose by more than AED 780 billion in 2025 to approximately AED 5,34 trillion at end‑December 2025, up from about AED 4,56 trillion a year earlier (≈17% annual growth).
Total bank credit increased from roughly AED 2,18 trillion at end‑2024 to about AED 2,57 trillion in 2025, an increase of nearly AED 390 billion (≈18% YoY).

Credit dynamics

Quarterly data from the Central Bank of the UAE (CBUAE) show the loan portfolio of the banking system growing by about 11,1% year‑on‑year by mid‑2025, reflecting broad‑based corporate and retail demand.
In the third quarter of 2025, net loans at the top 10 banks alone rose about 6,5% quarter‑on‑quarter, highlighting strong late‑year momentum.

Funding and deposits

Sector‑wide deposits rose sharply:
- Deposits increased by 13,1% YoY by Q2 2025, providing favourable funding conditions for continued lending.
- In December 2025 alone, banks deposits grew 2,2% month‑on‑month to AED 3,307 trillion.
Composition of deposits at end‑2025:
- Resident deposits: AED 3,01 trillion (+1,3% m/m)
- Non‑resident deposits: AED 297,8 billion (+12,2% m/m)
- Within residents:
  - Private sector deposits: +2,8% m/m to AED 2,25 trillion
  - Government‑related entity (GRE) deposits: +4,8% m/m to AED 296,2 billion

Key implication: Growth was funded by deposit inflows, not by wholesale funding stress; liquidity remained comfortable.

3. Profitability and asset quality

Sector profitability

According to Fitch, UAE banks achieved their highest profitability on record in 2024, with sector average operating profit estimated at 3.4% of risk‑weighted assets, up from 3,2% in 2023.
Equity research for 2025 indicates:
- Core earnings in 2025 were expected to remain around these elevated 2024 levels, even after absorbing the impact of the new UAE corporate tax regime.
- Net interest margins started to face mild pressure from the prospect of rate cuts, but this was offset by volume growth (loans) and rising non‑interest income.

Bank‑level performance examples

First Abu Dhabi Bank (FAB) – largest bank by assets:
- 2025 net profit: AED 21,1 billion, +24% YoY.
- Revenue: +16% to AED 36,68 billion; non‑interest income +36% YoY.
- Total assets: +16% to AED 1,4 trillion; loans +17% to AED 616 billion; customer deposits +7% to AED 841 billion.
- Non‑performing loan (NPL) ratio at a “historical low,” reflecting stronger asset quality.
Emirates Islamic:
- 2025 profit before tax: AED 3,9 billion, +26% YoY; net profit: AED 3,3 billion, +19% YoY.
- Assets: +31,2% to AED 146 billion; customer financing +26% to AED 89 billion; deposits +33% to AED 102 billion.
- Non‑performing financing ratio: 2.6%; impairment allowances down 68% YoY.
- CET1 ratio: 14,7%; capital adequacy ratio: 15,8%.
Commercial Bank of Dubai (CBD):
- 2025 net profit before tax: AED 3.844 billion, +15,6% YoY, marking 22 consecutive quarters of profit growth.

Asset quality and capital

System‑wide capital adequacy ratio (CAR) was about 17,3% in Q2 2025, well above minimum regulatory requirements.
CBUAE data and listed banks’ reports point to:
- Declining NPL ratios
- Lower impairment charges, especially at leading institutions such as Emirates Islamic and FAB

Key change vs. pre‑2023: The sector is now in a high‑profit, expansionary phase, not merely recovering from legacy problem loans.

4. Regulatory and structural shifts (2025)

New Central Bank Law 2025
A major structural event for the sector was the enactment of a new CBUAE Law in 2025, which repeals and replaces the 2018 framework.
Key changes:

Expanded regulatory perimeter
- “Licensed Financial Activities” now explicitly cover:
  - Open finance services
  - Payment services using virtual assets
  - Technology and infrastructure providers (platforms, protocols, apps) that enable payments, credit, deposits, exchange, remittances or investments, even if they are not banks or PSPs themselves.
Consumer protection and conduct
- Stronger requirements for:
  - Anti‑fraud and transaction monitoring
  - Transparent product disclosure and fair lending
  - Independent complaint‑handling mechanisms
  - Financial literacy and inclusion initiatives.
Enhanced enforcement powers
- Broader investigative and penalty powers for the CBUAE, raising compliance stakes for banks and fintechs alike.
ESG integration and digital dirham
- The law embeds ESG and climate‑risk oversight into the CBUAE’s statutory objectives.
- It recognizes the digital dirham as legal tender, anchoring central bank digital currency (CBDC) plans in primary legislation.

Digital dirham rollout

In late 2025, CBUAE published a policy paper detailing the digital dirham design and confirming:
- Legal tender status
- Phased rollout (retail, wholesale and cross‑border use cases) targeted between October and December 2025
- Licensed financial institutions (LFIs) and payment service providers as the primary distribution and innovation layer.
The digital dirham is the flagship project under CBUAE’s Financial Infrastructure Transformation (FIT) programme, aimed at modernising payment systems and enhancing monetary‑policy transmission.

Macroprudential measures

GCC banking outlook analysis highlights the introduction of a 0,5% countercyclical capital buffer (CCyB) in the UAE, adding a new macroprudential layer to protect against cyclical credit risks as lending accelerates.

Net effect: Regulation in 2025 moved decisively towards:

Broad coverage of tech‑enabled finance and virtual‑asset payments
Stronger conduct and ESG oversight
Formal preparation for a CBDC‑enabled payments ecosystem.

5. Islamic banking and ESG / sustainable finance

Islamic banking metrics

By the first half of 2025:
- Islamic banking assets in the UAE reached about USD 242,7 billion, growing at a compound annual rate of ~10%.
- Islamic banks accounted for about 18% of total UAE banking assets and 22% of total deposits.
Government strategy:
- A newly approved Islamic finance and halal industry strategy targets:
  - Islamic banking assets of AED 2,56 trillion (≈USD 697,5 billion) by 2031
  - Sukuk issuance of AED 660 billion (≈USD 179,8 billion)
  - International sukuk listings of AED 395 billion (≈USD 107,5 billion).

Product and ESG innovation

Emirates Islamic introduced:
- A sustainability‑linked financing sukuk
- The Islamic sector’s first treasury repo transaction in the UAE, improving liquidity management tools for Sharia‑compliant banks.
The new CBUAE Law’s explicit ESG mandate aligns regulatory priorities with these market developments, pushing banks to integrate climate and sustainability risk into risk‑management and product design.

Takeaway: Islamic banking in 2025 is not just growing in volume; it is at the centre of ESG and product innovation, and the UAE is positioning itself as a global Islamic finance hub.

6. Digital transformation and competitive landscape

Sector reports for 1H-2Q 2025 describe UAE banks as:
- Maintaining double‑digit loan growth and strong deposit growth
- Sustaining high profitability despite modest net‑interest‑margin pressure, helped by diversified non‑interest income, especially fees, FX and investment income.
FAB, DIB and others highlight:
- Heavy investment in digital channels, automation and data/AI, which is contributing to:
  - Lower cost‑to‑income ratios
  - Higher cross‑sell in payments, wealth management and SME segments.
The 2025 regulatory expansion to open‑finance and virtual‑asset payment services, combined with the digital dirham, effectively pulls more fintechs and technology platforms under CBUAE oversight, but also opens new partnership and product avenues for banks.

Competitive trend: The large incumbents are using scale and digital capex to widen the gap, but regulation also creates space for regulated fintechs operating under bank‑friendly open‑finance models.

7. M&A and structural consolidation

Across the wider Middle East financial services sector, the first half of 2025 saw around 70 deals worth about USD 1,6 billion, up from 60 deals worth USD 400 million in H1 2024, with banking, insurance and asset management as key verticals.
For the UAE, 2025 was more about:
- Regulatory tightening of merger control and competition law than about headline mega‑bank mergers.
- Greater scrutiny of deals involving AI, data and fintech companies, and use of an online filing portal for mergers, including in financial services.
Existing large‑scale combinations (e.g., prior consolidation that created national champions in Dubai and Abu Dhabi) continued to be integrated, but there were no transformative new bank‑on‑bank mega‑mergers announced at the same scale in 2025 based on available public sources.

Implication: The system remains relatively concentrated, but the main 2025 story is supervisory sophistication around transactions, especially in tech‑heavy and cross‑border contexts.

8. Tax and earnings structure

2025 was the first full year in which the federal corporate tax regime was fully embedded into banks financials:
- Dubai Islamic Bank explicitly notes that the “introduction of corporate tax this year adds a new element,” yet H1 2025 pre‑tax profit rose 16% and post‑tax profit 10% YoY.
- Sector equity research expects aggregate earnings to stabilise around 2024’s record levels in 2025 after absorbing higher tax, supported by robust credit growth and fee income.
For leading banks, return on equity remains strong:
- DIB reports ROE around 21% on an annualised basis for 2025.
- FAB targets ROTE above 16%, which is consistent with its 2025 performance and guidance.

Conclusion on profitability: Corporate tax cut into the after‑tax line but did not materially derail growth; volume expansion and non‑interest income compensated.

9. Key takeaways for 2025

Scale jump: Banking assets grew ≈17% to AED 5,34 trillion; credit expanded ≈18%, adding nearly AED 390 billion in loans within a year.
Record earnings resilience: Despite the start of full corporate tax, banks broadly maintained record‑high profitability levels via loan growth and fee income, with leading institutions posting 15-25% profit growth.
Strong balance sheets: CAR around 17,3%, declining NPLs and sharply lower impairment charges underscore system resilience.
Regulatory reset: A new CBUAE Law fundamentally widened the regulatory perimeter (open finance, virtual‑asset payments, tech enablers), embedded ESG, enhanced enforcement and formally anchored the digital dirham.
CBDC and payments pivot: The digital dirham moved from pilot to legal‑tender status with a phased launch plan, positioning UAE banks at the core of a new CBDC‑based payment stack.
Islamic banking acceleration: Islamic banks now control about 18% of sector assets and 22% of deposits, with a national strategy to more than double Islamic assets and sukuk volumes by 2031.
Macroprudential tightening: Introduction of a 0,5% countercyclical buffer and closer merger‑control scrutiny mark a more proactive stance on systemic and competition risks.