Share price rally tipped to keep rolling for UAE banks

February 19, 2025, 7:58 AM

A branch of Dubai Islamic Bank. Its share price is up 23% over the past 12 months

Abu Dhabi Commercial Bank stock up 40%
Loans growth underpins share price rise
Dividend yields higher than GCC rivals

A year-long rally in share prices for major UAE banks still has some steam in it, underpinned by loans growth and attractive dividend yields, analysts have said.

In the 12 months to February 11, the share price of Abu Dhabi Commercial Bank (ADCB) surged by almost 40 percent. Shares in Emirates NBD, Mashreq and Dubai Islamic Bank have risen by about 25 percent.

First Abu Dhabi Bank (FAB) has a more modest 12-month increase, but its price is up 25 percent since July, according to AGBI calculations.

Despite the rally, Emirates NBD and FAB are still trading at more than 10 percent below analysts' average target prices.

“UAE banks offer higher dividend yields and have lower valuations compared with banks in other GCC countries,” says Sherif El Etr, a banking analyst at CI Capital in Cairo.

Another indicator of the sector’s relatively modest valuations is the lenders’ trailing price-to-earnings ratios.

Emirates NBD trades at a P/E ratio of 6 and FAB at 9.7. That is down from their peak ratios for this decade, according to the Simply Wall Street website.

“UAE banks are cheaper and pay more in dividends,” says El Etr. “That remains the case even with higher taxes and declining net interest margins.”

Dubai’s Mashreq offers a dividend yield of 8.4 percent. FAB offers investors 5.2 percent, ADCB 5 percent and Emirates NBD 4.7 percent

Emirates NBD made an annual profit of just under AED23 billion ($6.3 billion) last year, up 7 percent compared with 2023. This is despite its tax bill almost doubling with the introduction of UAE corporate tax and a 30 basis-point drop in its net interest margin.

Although FAB’s tax expenses nearly tripled, its annual net profit rose 4 percent to AED17.1 billion.

“Foreign institutional investors are much more interested in UAE bank stocks than they were a couple of years ago,” says Rahul Bajaj, director of Mena equity research at Citigroup in Dubai.

“The population growth and the volume and momentum of loan growth suggest that this current lending boom is stickier and not as volatile as in previous cycles.”

Bajaj’s preferred UAE banking stock is ADCB, which he says “has de-risked its loan book significantly”.

UAE banks could achieve loan growth in the “low double digit” percentages this year, driven by demand in the UAE and overseas, according to El Etr.

'UAE banks offer higher dividend yields and have lower valuations compared with banks in other GCC countries,' says analyst Sherif El Etr

“That’s not only from banks’ foreign subsidiaries” – such as Emirates NBD’s Turkish unit Denizbank – but also through banks making cross-border loans to entities in other GCC countries, particularly Saudi Arabia, he says.

Despite the 12-month rally, the share price of FAB and Emirates NBD slid in recent weeks when the UAE’s two largest banks by assets proposed relatively limited dividends compared with Dubai bellwether Emaar Properties. In December Emaar pledged to double its annual per-share payout.

By contrast, Emirates NBD proposed a dividend of AED1 per share on January 28, down from AED1.2 in 2023. Its stock plunged almost 10 percent on the news. It has since recovered somewhat, but remains below its pre-dividend announcement value.

On February 6 FAB proposed a 2024 dividend of AED0.75 per share, up from AED0.71 the previous year and the highest since at least 2021.

But investors were still not happy – at least not initially. FAB’s stock plunged to a four-week low on February 7 before recouping most of the losses.

The sell-offs were unjustified, says El Etr, and instead offer a buying opportunity.