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UAE and Saudi Arabia banks report strong growth

UAE's banking sector capped off a strong year in 2023, with total assets reaching a record high of $1.1 trillion

UAE and Saudi Arabia banks report strong growth
[Source photo: Krishna Prasad/Fast Company Middle East]

Banking sectors across the Gulf are witnessing a growth spurt, with Saudi Arabia and the UAE leading the charge. Saudi banks boast impressive income growth and strong financials, while the UAE is experiencing record highs in assets and deposits. This positive trend suggests a robust and thriving financial landscape in the region.

According to the Central Bank of the UAE (CBUAE), the UAE’s banking sector capped off a strong year in 2023, with total assets reaching a record high of $1.1 trillion, an 11% increase year-on-year. This growth momentum is expected to continue in 2024.

The report from the CBUAE also highlighted a 4.2% rise in customer deposits during the last quarter of 2023, bringing the total to $680.7 billion. Notably, Moody’s credit rating agency emphasized the stability of the UAE banking system, with 78% of bank funding sourced from low-cost deposits.

This “stickiness” of deposits, coupled with a healthy net loans-to-deposits ratio of 74%, indicates that UAE banks are not reliant on volatile market funding for lending activities.

Furthermore, the CBUAE report demonstrates the sector’s strong financial health. Reserves held by UAE banks reached $24 billion in Q4 2023, with a capital adequacy ratio exceeding regulatory requirements by a significant margin (17.9% compared to the mandated 13%).

The central bank’s proactive measures in providing efficient services contributed to the overall stability of the banking system. This stability comes alongside impressive growth across assets, credit, deposits, and investments.

The report also details a significant increase in the central bank’s foreign assets (up 16.7% QoQ) and a jump in the money supply (M1) by 4.2% in the last quarter of 2023. 

This growth is attributed to rising current account balances and foreign investments. Finally, the liquidity of the UAE banking sector witnessed a significant improvement, with liquid assets soaring by 29% year-on-year in Q4 2023.

Similarly, Saudi banks delivered impressive results in 2023, according to a report by professional services firm Alvarez & Marsal (A&M). Their annual Kingdom of Saudi Arabia Banking Pulse revealed a thriving financial sector with key metrics experiencing significant growth.

“The performance of the leading Saudi banks is undeniably strong,” said A&M, highlighting a 9.5% jump in operating income. This increase was primarily driven by a rise in non-interest revenue, indicating diversification beyond traditional lending models.

The report delves into the performance of major institutions like Saudi National Bank, Al-Rajhi Bank, and Riyad Bank. 

It reveals a noteworthy 3.5% improvement in the net interest margin, translating to a profitability boost for the sector. Additionally, the return on equity climbed to a healthy 14.5%, showcasing the industry’s robust financial standing.

A&M’s findings also suggest a positive trend in the cost of risk, indicating a potential decrease in loan defaults. 

The report credits record deposits from government-related entities (representing a staggering 68.2% of total inflows) for improving liquidity conditions within the banking system.

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