UAE Banking Sector Outlook 2024: Stability & Growth

UAE banking sector outlook

The banking sector in the UAE is looking forward to a stable year in 2024 following a period of robust profitability in 2023. Analysts predict favorable conditions with stable interest rates, reduced bad loans, and a strong GDP contributing to the optimistic outlook.

According to financial market experts at Alvarez & Marsal (A&M), the top 10 banks in the UAE experienced a significant increase in profitability in 2023, with a 28.8% year-on-year jump in profits. This surge was driven by various factors including a rising interest rate environment, higher interest income, growth in advances, expanded net interest margins (NIM), and improved asset quality.

Asad Ahmed, Managing Director and Head of Middle East Financial Services at A&M, highlighted the healthy performance of banks in 2023, with many institutions witnessing improved profitability and stronger return on investment metrics. Despite a slower fourth quarter, the overall sentiment remains optimistic, albeit cautious due to geopolitical uncertainties.

Looking ahead, analysts anticipate a shift in the second half of 2024 as the Central Bank of the UAE aligns its benchmark rate with that of the US Federal Reserve. This alignment is expected to lead to rate reversals, potentially enhancing margins in the short term. Overall, the banking sector is well-capitalized, profitable, and liquid, with regulators providing robust support, setting the stage for a stable year ahead.

Fitch Ratings echoed similar sentiments, noting that most UAE banks reported record profitability metrics in 2023, which are expected to be sustained in 2024. Factors such as widened margins, healthy liquidity, and a favorable economic environment are expected to contribute to continued profitability.

S&P Global's 'GCC Banking Sector Outlook 2024' reflects a challenging yet optimistic perspective. Despite geopolitical uncertainties, GCC banks are expected to maintain their well-capitalized and profitable status. Credit growth and profitability are projected to remain robust, particularly in the UAE and Saudi Arabia, although risks such as geopolitical tensions and real estate exposure persist.

The A&M report highlighted key financial metrics for the UAE banking sector in 2023. Loans and advances grew by 9% year-on-year, albeit at a slower pace than deposit growth. Non-interest income increased by 27.6% year-on-year, while net interest margins expanded by 36 basis points to 2.8%. Return on equity and return on assets also showed improvement compared to the previous year.

Aggregate deposits for the top 10 banks grew by 13.4% year-on-year, outpacing the growth in loans and advances. Total operating income increased significantly by 28.8% year-on-year, primarily driven by net interest income. The expansion of net interest margins was supported by a higher yield on credit due to an increase in the Central Bank of the UAE policy rate.

In conclusion, the UAE banking sector anticipates a stable and prosperous year in 2024, building on the momentum of strong profitability and returns observed in 2023. Despite challenges and uncertainties, banks are well-positioned to navigate the evolving economic landscape and continue to contribute positively to the country's financial stability and growth.