• Net interest margins (NIMs) stable; favorable asset repricing offsets pressure from higher cost of funds (CoF)
  • Moderate asset quality concerns expected to resurface in 2023

Dubai – Leading global professional services firm Alvarez & Marsal (A&M) has released its latest United Arab Emirates (UAE) Banking Pulse for the first quarter of 2023. The report highlights that UAE banks’ profitability grew by 35 percent in Q1’23 from the previous quarter due to enhanced cost efficiencies and lower impairment charges. This increase in profitability was further supported by a rise in non-core income.

Incremental deposit growth outstripped credit growth for the first time since Q1’22 amidst monetary tightening. L&A growth was up by 2.0 percent quarter-on-quarter (QoQ), while deposits increased by 6.2 percent QoQ.

Aggregate net interest income (NII) increased marginally by 0.4 percent QoQ and the overall NIMs remained stable at 2.8 percent for the quarter. Overall asset quality showed some improvement with non-performing loan (NPL) / net loans ratio decreasing by 16 basis points (bps) to 5.4 percent.

Overall, top lenders reported higher profitability and return on equity (RoE) improved by 5.9 percent points QoQ to 19.3 percent, whereas return on assets (RoA) increased to 2.2 percent marking a return to new levels not seen for the last four years.

A&M’s UAE Banking Pulse examines data from the 10 largest listed banks in the UAE, comparing the Q1’23 results against Q4’22 results. Using independently sourced published market data and 16 different metrics, the report assesses banks’ key performance areas, including size, liquidity, income, operating efficiency, risk, profitability, and capital.

The report also offers an overview of the key developments affecting the banking sector in the UAE. Starting with this issue, A&M has added further granularity to the analysis with a segment view of loans & assets, deposit mix and a stage–wise breakdown of the lending book.

The country’s 10 largest listed banks analyzed in A&M’s UAE Banking Pulse are First Abu Dhabi Bank (FAB), Emirates NBD (ENBD), Abu Dhabi Commercial Bank (ADCB), Dubai Islamic Bank (DIB), Mashreq Bank (Mashreq), Abu Dhabi Islamic Bank (ADIB), Commercial Bank of Dubai (CBD), National Bank of Fujairah (NBF), National Bank of Ras Al-Khaimah (RAK) and Sharjah Islamic Bank (SIB).

The prevailing trends identified for Q1 2023 are as follows:

  • Banks witnessed a revival in L&A and deposits growth amidst monetary tightening. Deposits grew by 6.2 percent QoQ – faster than growth in L&A, which grew by 2.0 percent QoQ in Q1’23. Corporate / wholesale lending reported the highest growth of 3.0 percent QoQ (accounted for ~55.6 percent of aggregate L&A) followed by retail loan (+2.6 percent QoQ); whereas government lending reported a decline (-0.6 percent QoQ). Rising interest rate has resulted in growth of time deposit which accounted for 43.5 percent in Q1’23 (up from 43.2 percent in Q4’22 and 39.0 percent in Q1’22). Consequently, loan-to-deposit ratio (LDR) declined 3.1 percent points QoQ to 74.9 percent.
  • Total operating income increased by 3.8 percent QoQ in Q1’23 as compared to 15.0 percent QoQ in Q4’22. The growth in operating income was driven by non-core income which increased by 12.5 percent QoQ. Despite rising benchmark rates, the NII grew only marginally by 0.4 percent QoQ indicating pressure on the cost of funds.
  • Banks on an aggregate level reported stable NIMs at 2.8 percent as yield on credit increased marginally (+0.8 percent points QoQ) to 10.3 percent in Q1’23.  Aggregate NII (+0.4 percent QoQ) grew marginally due to an increase in The Central Bank of the UAE (CBUAE) policy rate by 75bps year-to-date (YTD). The cost of funds increased by 48bps QoQ to 3.2 percent. NIM was on average stable for the quarter; the decline was mainly an effect of lower LDR than the spread compression.
  • Reduction in operating expenses and cost efficiency improvement seen in most banks. Cost-to-income (C/I) ratios improved by 352bps QoQ to reach 27.7 percent in Q1’23 due to fall in the operating expense (-7.9 percent QoQ). Overall, operating income grew by 3.8 percent QoQ.
  • The cost of risk (CoR) improved by 61bps QoQ to settle at 0.8 percent for Q1’23. Total impairments declined by 42.6 percent QoQ to AED 3.6bn in Q1’23. Seven out of ten banks reported an improvement in cost of risk.
  • Aggregate net income increased marginally by 35.3 percent QoQ while earnings growth was supported by decline in impairment charges. Consequently, ROE and ROA showed significant increases to reach 19.3 percent and 2.2 percent respectively (on an annualized basis) in Q1’23.


The table below sets out the key metrics:



Q4 2022

Q1 2023


Loans and Advances Growth (QoQ)



Deposits Growth (QoQ)




Loan-to-Deposit Ratio (LDR)



Income & Operating Efficiency

Operating Income Growth (QoQ)



Operating Ince / Assets



Non-Interest Income / Operating Income



Yield on Credit (YoC)



Cost of Funds (CoF)



Net Interest Margin (NIM)



Cost-to-Income Ratio (C/I)




Coverage Ratio



Cost of Risk (CoR)




Return on Equity (RoE)



Return on Assets (RoA)



Return on Risk-Weighted Assets (RoRWA)




Capital Adequacy Ratio (CAR)



Source: Financial statements, investor presentations, A&M analysis

Mr. Asad Ahmed, A&M Managing Director and Head of Middle East Financial Services commented: “This has been a very strong quarter for the UAE banks. We expect that for the balance of the year, the UAE banking sector will maintain the gains of the first quarter. Stable NIMs, improving cost efficiencies and lower impairments have led to record profits for the UAE banks in the current quarter, although we witnessed mixed performance by some banks on the margin front.

“A modest reduction in economic growth is expected on the back of the agreed oil output cuts and higher interest rates. Higher margins should drive bank profitability though slightly tempered by an uptick in provisioning – the latter tends to accompany a rate increase. The UAE banks are well provided for and sufficiently capitalized to maintain capital adequacy ratio (CAR) levels, well above regulatory requirements.”

About Alvarez & Marsal

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Kiran Makhija/ Prerna Agarwal                       
Hanover Middle East           
Sandra Sokoloff, Senior Director of Global Public Relations                       
Alvarez & Marsal