The Central Bank of the UAE (CBUAE) has released its Financial Stability Report for 2022, confirming that the Islamic banking sector in the UAE experienced steady growth, accounting for 23.0% of the total banking sector assets. The report highlights the sector’s improved profitability, sufficient capital buffers, ample lending capacity, and enhanced liquidity buffers. Additionally, it reveals positive developments in asset quality, with a decline in non-performing financing and stable provision coverage.
According to the report, the assets of the UAE Islamic banking sector expanded by 8.3% to reach AED 845.2 billion in 2022. The UAE banking system comprises eight fully-fledged Islamic banks and 17 Islamic windows established by conventional banks, with total asset sizes of AED 630.7 billion and AED 214.5 billion, respectively.
Demand for Shariah-compliant financing remained strong, witnessing a growth of 4.9% in 2022, resulting in total financing reaching AED 536.4 billion. The growth was primarily driven by government and retail financing, while private corporate financing, which constituted the majority (41.7%) of total financing, experienced a slight decrease of 2.1%. The main contributors to retail financing growth were personal consumer financing, followed by mortgage and car financing.
The investment assets portfolio, accounting for 15.0% of total assets, continued to expand by 13.9% in 2022, reaching AED 127.2 billion. This growth was mainly attributed to the increased holdings of Sukuk, which constituted over 97% of the total investment portfolio. Islamic banks maintained a strong funding position, with customer deposits accounting for 66.3% of total liabilities, while capital market funding represented only 5.2%.
Total deposits increased by 4.1% to AED 538.6 billion, representing a 1.3 percentage point rise compared to the previous year. Profit-sharing investment accounts (PSIA) accounted for 68.4% of total deposits, experiencing a growth of 15.8% in 2022. Capital market funding also grew by 7.0% during the same period.
The report further highlights the recovery of profits, with the return on assets (ROA) increasing by 0.5 percentage points from the previous year to 1.8%. This improvement can be attributed to higher net financing income and reduced impairment charges. The cost-to-income ratio also showed progress, improving to 28.9%, indicating increased cost efficiency. Furthermore, the sector’s capital buffers remained adequate, with an aggregate Capital Adequacy Ratio (CAR) of 17.7%.
