The UAE’s five largest banks reported a combined net profit of Dh38.1 billion in the first half of 2026, up 7.8 per cent year-on-year, even as a sharp rise in provisioning and softening asset yields put pressure on profitability, according to a new report by Moody’s Ratings.
First Abu Dhabi Bank (FAB), Emirates NBD, Abu Dhabi Commercial Bank (ADCB), Dubai Islamic Bank (DIB) and Mashreq – which together hold around 79 per cent of UAE banking system assets – saw earnings supported by strong net interest income, sustained fee and commission growth, and robust treasury and trading revenue, Moody’s said in its H1 2026 sector update.
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However, these gains were partly offset by higher operating expenses and a near-60 per cent jump in loan loss provisions, as banks adopted a more cautious stance towards geopolitical risks. As a result, aggregate annualised return on assets softened to around 1.8 per cent, from 1.9 per cent a year earlier.
Combined net profit for the five banks rose by Dh2.7 billion year-on-year to Dh38.1 billion. Net interest income contributed Dh4.7 billion of the additional earnings, while fee and commission income added Dh1.7 billion and other non-interest income contributed a further Dh1.1 billion. These gains were partly eroded by Dh2 billion in additional operating expenses and Dh2.1 billion in extra provisioning charges.
Aggregate assets across the top five lenders rose 14 per cent year-on-year to around Dh4.35 trillion, with earnings growth of 7.8 per cent leaving annualised returns slightly below the record levels seen between 2023 and 2025. ADCB was the only bank among the five to see its return on assets improve rather than moderate during the period, Moody’s noted.
Lending growth offsets rate cuts
The five banks reported combined net interest income of Dh46.8 billion in H1 2026, an 11 per cent year-on-year increase, driven mainly by an 18 per cent rise in average interest-earning assets amid sustained lending opportunities in the UAE, particularly in sectors tied to the government’s strategic investment agenda, as well as across regional markets.
This larger asset base helped offset a decline in asset yields to 6.1 per cent from 6.8 per cent, following the Central Bank of the UAE’s rate cuts in the second half of 2025.
System-wide private deposits dipped 1 per cent at the onset of the Middle East conflict in March 2026 but rebounded quickly, with the five largest banks posting 16 per cent year-on-year growth in customer deposits.
Lower benchmark rates and sizeable low-cost current and savings account balances pushed the aggregate cost of funds down to 3.5 per cent from 3.9 per cent, cushioning the effect of lower asset yields and limiting the compression in net interest margins to 2.6 per cent from 2.8 per cent. FAB was the outlier, widening its margin to 1.7 per cent from 1.6 per cent on disciplined repricing and treasury management.
Efficiency remain strong
Non-interest income rose 12 per cent year-on-year to Dh26 billion, with fee and commission income up 18 per cent on higher volumes in trade finance, cards, wealth management and transaction banking. FAB, Emirates NBD and ADCB led the growth. Trading and treasury revenue was also boosted by geopolitical-driven market volatility and increased customer hedging activity.
Non-interest income made up more than 35 per cent of aggregate operating income in H1 2026, reducing the banks’ reliance on traditional spread-based earnings.
Operating expenses rose 11 per cent year-on-year to about Dh19.9 billion, reflecting continued investment in digital transformation, artificial intelligence and international expansion.
Provisions surge
Combined loan loss provisions jumped nearly 60 per cent to Dh5.6 billion from Dh3.5 billion in H1 2025, driven largely by additional management overlays rather than actual deterioration in asset quality, Moody’s said.
ADCB was the exception, posting a 36 per cent decline in impairment charges, while Mashreq recorded a net impairment write-back of Dh130 million and a negative cost of risk of 15 basis points, mainly due to a one-off recovery of previously written-off exposures.
Despite the higher provisioning, underlying asset quality held up, with the overall non-performing loan (NPL) ratio falling by around 71 basis points from H1 2025. NPL ratios stood at 0.9 per cent at Mashreq, 1.9 per cent at ADCB, 2.1 per cent at Emirates NBD, 2.3 per cent at FAB and 2.4 per cent at DIB. Regulatory loan deferrals under the Proactive Financial Institution Resilience Package, announced in March 2026, remained negligible at less than 0.3 per cent of total system loans as of May.
Moody’s expects UAE banks’ profitability to remain sound through the rest of the year, supported by the multiyear capex cycle, though lending will be more selective given weaker confidence tied to the Middle East conflict. Fee income is expected to moderate as trade, wealth management and deal activity soften, while credit costs are likely to stay elevated as banks front-load provisions ahead of possible asset quality deterioration.
Source: Khaleej Times