Alvarez & Marsal’s UAE Banking Pulse: Q2’s highlights in 6 charts
The UAE’s largest banks delivered a mixed performance in the second quarter of 2026, with several metrics demonstrating notable resilience while others showed signs of moderation, according to the latest UAE Banking Pulse from Alvarez & Marsal.
The quarterly report found that the UAE’s ten largest banks, which together account for around 90% of the country’s banking-sector assets, had a quarter marked by continued balance sheet expansion, robust asset quality, and solid capital buffers. Bank profitability remained resilient, despite a quarter-on-quarter decline in operating income.
A roundup of the report’s main findings in six charts:
Lending growth continued to outpace deposit mobilization. Net loans and advances (L&A) grew by 4.2% quarter-on-quarter, while aggregate deposits grew by 2.3% quarter-on-quarter.
Aggregate operating income declined 1.2% quarter-on-quarter to AED 43.9 billion, primarily driven by a 6.0% contraction in non-interest income, which was partially offset by a 1.7% quarter-on-quarter increase in net interest income.
Sector net interest margin (NIM) marginally declined to 2.34% in the second quarter, as the 18 basis points quarter-on-quarter increase in cost of funds (CoF) to 3.6% outpaced the 6 basis points quarter-on-quarter increase in yield on credit to 9.6%.
Despite the margin compression, the profitability of banks remained resilient, with return on equity (RoE) increasing to 18.9% and return on assets (RoA) remaining stable at 2.0%, supported by a 2.7% quarter-on-quarter increase in aggregate net income.
Asset quality remained resilient, with the non-performing loans (NPL) remaining at historically low level at 2.3%, while coverage ratio decreased marginally to 108.8%. Cost of risk (CoR) improved to 0.35% in Q2 of 2026, primarily driven by lower provisions at the top five banks (FAB, ENBD, ADCB, DIB and MASQ), rather than a significant structural improvement in underlying asset quality.
Commenting on the report, Sam Gidoomal, Managing Director and Head of Financial Services for the Middle East at Alvarez & Marsal, said: “UAE banks delivered a mixed set of results during Q2 2026, characterized by continued balance sheet expansion, resilient asset quality and solid capital buffers. Profitability, however, showed a moderate increase amid elevated funding and operating costs.”
“The backdrop of ongoing geopolitical tensions and related business disruption during the quarter has heightened concerns over potential asset quality deterioration and the potential for increased credit provisioning in the second half of 2026.”
Looking ahead
Looking ahead to Q3 and beyond, Alvarez & Marsal said that lending momentum will be an important indicator as corporates and consumers continue to assess investment and financing decisions amid sustained regional certainty.
Liquidity conditions will increasingly depend on the ability of banks to maintain resilient funding profiles and liquidity levels amid potential deposit volatility and changing customer behavior. Meanwhile, the provisioning outlook is expected to remain focused on the pace of incremental credit impairment charges, together with the effectiveness of the central bank’s support measures in preserving sector resilience.
UAE Banking Pulse
For its UAE Banking Pulse, Alvarez & Marsal analyzes the financial performance of the ten largest UAE banks by asset size: First Abu Dhabi Bank (FAB), Emirates NBD (ENBD), Abu Dhabi Commercial Bank (ADCB), Dubai Islamic Bank (DIB), Mashreq Bank (MASQ), Abu Dhabi Islamic Bank (ADIB), Commercial Bank of Dubai (CBD), National Bank of Ras Al-Khaimah (RAK), Sharjah Islamic Bank (SIB), and National Bank of Fujairah (NBF).
