Asset Quality and Lending Growth of the Top UAE Banks (2019 – 2023): An Empirical Investigation

Abstract

This study aims to thoroughly analyse the intricate relationship between asset quality and lending growth among the major national banks in the UAE from 2019 to 2023. Utilizing the pooled EGLS method and reviewing annual panel data collected from the financial statements of 10 UAE banks during this timeframe, the findings reveal that return on assets (ROA) positively influences loan growth, while non-performing loans negatively affect it, as expected. Interestingly, the capital adequacy ratio seems to have an unexpected negative impact on loan growth. Regarding the factors influencing non-performing loans, the study confirms that, as anticipated, the capital adequacy ratio (CAR), return on assets (ROA), return on equity (ROE), and the ratio of liquid assets to total assets (LIQ) negatively affect the non-performing loans (NPL) of banks in the UAE. These insights are valuable for policymakers, highlighting the importance of asset quality, addressing Non-Performing Loans (NPLs), and reevaluating capital adequacy requirements.