UAE Banks Defy Rate Cuts With Double-Digit Profit Growth
First-quarter results indicate that productivity gains and diversified business models are increasingly replacing monetary policy as drivers of bank performance.
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The UAE’s largest banks entered 2026 with stronger profitability despite a less favorable interest rate environment.
According to Alvarez & Marsal’s latest UAE Banking Pulse, the country’s 10 largest listed banks reported an 11.1% quarter-on-quarter increase in net income during the first quarter of 2026. Return on equity improved to 18.7%, up from 16.9% in the previous quarter, while the sector’s cost-to-income ratio fell to 27.3%, reflecting continued discipline in managing operating expenses.
The results come as banks adjust to a lower-rate environment. Net interest margins declined to 2.37% from 2.47% in the fourth quarter of 2025 following three policy rate cuts between September and December. Rather than relying solely on lending spreads, banks generated growth through other sources of income. Non-interest income rose 23.9% quarter-on-quarter, led by a 16.5% increase in fee and commission income.
“The quarter demonstrated the sector’s ability to maintain earnings resilience through diversified revenue generation and disciplined cost management,” the report noted.
Balance-sheet expansion also remained strong. Total loan books grew 5.8% during the quarter, outpacing deposit growth of 3.8%. Corporate and wholesale lending accounted for much of the increase, rising 6.5%, while retail lending expanded 3.6%. Among the largest institutions, First Abu Dhabi Bank and Emirates NBD recorded loan growth of 8.3% and 7.1%, respectively.
Asset quality continued to improve despite regional uncertainty. Non-performing loan ratios declined to 2.3%, while provisioning strengthened, with coverage ratios reaching 110%. Stage 1 loans—the highest-quality assets under international accounting standards—now account for nearly 94% of total lending portfolios.
The results also reflect the role of regulatory support. In March, the Central Bank of the UAE introduced a five-pillar resilience package that expanded liquidity access, eased selected regulatory requirements, and extended Dh6.2 billion in relief measures to more than 65,000 customers through loan deferrals, fee waivers, and targeted sector support.
Beyond financial performance, the report points to AI becoming an increasingly measurable contributor to banking productivity. First Abu Dhabi Bank reported productivity improvements of up to 20% following enterprise-wide deployment of agentic AI, while Emirates NBD has expanded more than 50 AI initiatives across the organization.
Mashreq Bank said its AI-powered chatbot now resolves 89% of customer queries without human intervention, and Abu Dhabi Commercial Bank attributed part of a 10.9% reduction in staff costs to embedding AI into employee workflows.
Taken together, the quarter suggests the UAE banking sector is becoming less dependent on favorable interest-rate cycles and more reliant on digital business models for profitability.
