The UAE banking sector is set to experience solid lending growth in 2025, supported by relaxed monetary policies and a favorable economic environment, according to a report by S&P Global Ratings, as cited by Zawya.

Puneet Tuli, an analyst at S&P Global Ratings, mentioned that UAE banks have seen a significant rise in deposits over the last three years, which is expected to sustain their growth momentum. However, he cautioned that some external deposits could face risks due to global economic uncertainties.

While lending is likely to grow, profitability for UAE banks may slightly decline in 2025 after record-breaking results in recent years. Tuli explained that the “cost of risk” is expected to remain low, allowing banks to maintain high profitability levels, although they may not reach the peak seen in 2023.

The S&P report also pointed out that non-performing loans and credit losses are forecasted to stay low, thanks to the robust performance of non-oil sectors. Additionally, expected interest rate cuts should enhance the quality of banking assets.

The resilience of UAE banks has been reinforced by strong capital buffers, supported by consistent profitability and cautious dividend policies. By the end of 2023, hybrid instruments such as Tier 1 capital accounted for only 12.2% of total adjusted capital, showcasing the solid quality of the sector’s capital.

Tuli added that with interest rates declining, banks could have an opportunity to issue new hybrid instruments at reduced costs, replacing older ones as they mature.