Why UAE, Saudi, Qatari banks are giving out more loans at lower interest rates

07/08/2025 04:56 AST

Why are banks in the UAE, Saudi Arabia and Qatar lending more - and doing it cheaper?

Falling interest rates across the Gulf are driving a sharp rise in loan activity, with major lenders like Emirates NBD, First Abu Dhabi Bank (FAB), and Saudi Arabia's Al Rajhi Bank reporting double-digit growth in the second quarter - and now expecting even stronger gains ahead in 2025.

The latest data from S&P Global Market Intelligence shows that five of the Gulf Cooperation Council's (GCC) top lenders recorded strong loan growth in the second quarter, with Saudi Arabia's Al Rajhi Bank leading the charge. The bank's lending expanded by 19.3%, nearly tripling the 7.4% growth seen a year earlier.

Other major Saudi lender, Saudi National Bank, posted 12.2% loan growth, up from 10.3% a year ago.

In the UAE, First Abu Dhabi Bank (FAB) raised its full-year loan growth guidance to the low double digits after posting a 10.7% increase in Q2, compared to 6.3% in the same period last year. Dubai-based Emirates NBD also revised its forecast following a 14.3% rise in loans for the quarter.

Qatar National Bank (QNB), meanwhile, grew its loan book by 9.4%, nudging its guidance to 7-9% from the earlier 5-7% estimate. QNB said nearly half of its growth came from its Turkish operations.

"Loan growth will likely stay strong in Qatar, Saudi Arabia, and the UAE for the rest of the year," said S&P Global Ratings in a separate July 10 outlook. "These central banks are expected to follow the US Federal Reserve's anticipated rate cuts in the second half."

Profits surge on higher lending
As loans increased, most banks saw a corresponding rise in net interest income (NII).

QNB reported NII of $2.34 billion in Q2, up from $2.12 billion a year earlier, despite high rates impacting its Turkish margins. The bank expects improvement if Turkey cuts rates as forecasted.

Emirates NBD's NII rose 6% to $2.28 billion despite a 22-basis-point drop in net interest margin (NIM) to 3.36%, mainly due to its Turkish subsidiary, DenizBank. The bank expects full-year NIM to land between 3.3% and 3.5%, assuming margin recovery in Turkey.

Al Rajhi Bank saw the sharpest NII increase, jumping 25% year-on-year to $1.95 billion. Its Q2 net profit surged 31% to $1.64 billion, buoyed by higher lending and fee-based income.

FAB also booked record profits, reporting $1.50 billion in Q2, a 29% increase from a year earlier. Saudi National Bank and QNB saw earnings rise 18% and 4%, respectively.

The only outlier was Emirates NBD, which posted a 10% profit drop year-over-year, attributed to a $31 million impairment charge. This compares to a $374 million reversal in the same period last year.

Fitch Ratings noted in June that banks with Turkish exposure could see reduced monetary losses if the country's inflation continues to decline.

Outlook
With US rate cuts likely and GCC central banks expected to follow suit, the region's banking sector appears poised for continued lending momentum and income growth in the second half of 2025.

For UAE residents, this could mean improved access to credit and more competitive borrowing costs, especially for personal loans, mortgages, and SME financing.

Gulfnews