FAB's Record H1 2025 Earnings: A Strategic Case for Undervalued Growth in the UAE Banking Sector

First Abu Dhabi Bank (FAB) has shattered expectations with its record-breaking first-half 2025 financial performance, posting a net profit of AED 10.63 billion—a 26% year-on-year increase—and a Return on Tangible Equity (RoTE) of 20.5%. These figures not only outpace industry benchmarks but also underscore FAB's emergence as a leader in AI-driven innovation and diversified revenue generation. For investors, this represents a compelling opportunity to capitalize on a bank that is redefining the UAE banking sector's growth trajectory while trading at a discount to its intrinsic value.

AI-Driven Transformation: A Catalyst for Efficiency and Growth

FAB's strategic embrace of artificial intelligence (AI) has positioned it as a pioneer in digital banking. The deployment of a foundational Agentic AI platform, coupled with the rollout of Microsoft 365 Copilot for all employees, has streamlined operations and enhanced decision-making. Innovations such as the Board AI Observer—a tool that analyzes boardroom discussions to optimize governance—and Voice Concierge, which personalizes customer service, have significantly improved operational efficiency. These advancements have reduced the cost-to-income ratio to 22.3% in Q1 2025 (down from 24% a year earlier), while boosting customer satisfaction and retention.

The integration of AI into credit analytics and onboarding processes has further strengthened FAB's risk management framework. By automating underwriting and fraud detection, the bank has reduced loan impairments and accelerated customer acquisition. This technological edge is not just a cost-saving measure—it's a revenue driver. For instance, FAB's AI-powered investment banking division secured a landmark deal to finance one of the region's largest data center projects, contributing to a 17% year-on-year revenue increase in its global markets segment.

Diversified Revenue Streams: A Buffer Against Volatility

FAB's revenue model is increasingly resilient, with non-interest income surging 41% to AED 8.35 billion in H1 2025. This growth was fueled by a 25% rise in fees and commissions and a 30% increase in foreign exchange and investment income. The bank's non-interest income now accounts for 46% of total revenue—a stark contrast to the UAE banking sector's average of 38%. This diversification insulates FAB from interest rate fluctuations and positions it to thrive in a low-rate environment.

Geographic diversification further amplifies this resilience. FAB's international operations, spanning 16 countries, contributed 30% year-on-year revenue growth in H1 2024. Its recent membership in the Cross-Border Interbank Payment System (CIPS) as the first bank in the MENA region has unlocked new cross-border transaction opportunities, particularly in China and Asia. Domestically, FAB's expansion into wealth management, personal banking, and corporate finance has driven 12% revenue growth in these segments.

A Fortress Balance Sheet: Capital Strength and Risk Resilience

FAB's financial discipline is evident in its robust balance sheet. Total assets grew 11% to AED 1.34 trillion, with loans and advances rising 7% to AED 568 billion and customer deposits increasing 4% to AED 813 billion. Crucially, the non-performing loan (NPL) ratio hit a multi-year low of 2.84%, while the Common Equity Tier 1 (CET1) ratio remained at 13.4%—well above the regulatory minimum and the UAE sector average of 14%. This capital fortitude ensures FAB can withstand economic shocks while funding its aggressive growth agenda.

The bank's liquidity coverage ratio (LCR) of 152% and its AA- credit rating (the highest in the region) further reinforce its stability. These metrics are critical for investors seeking long-term value, as they signal FAB's ability to maintain profitability even during downturns.

Undervaluation in a High-Growth Sector

Despite these strengths, FAB trades at a forward P/E ratio of 10.2x, below its historical average of 12.5x and the UAE banking sector average of 11.8x. This discount is puzzling, given FAB's 20.5% RoTE—exceeding the sector's 18.6% ROE—and its leadership in ESG initiatives. The bank's sustainable financing projects have reached AED 318 billion (64% of its 2030 target), earning it an MSCI ESG rating of 'AA' and a top 6% global ranking. ESG-conscious investors are increasingly prioritizing banks with strong sustainability credentials, yet FAB's valuation remains anchored to its legacy metrics.

Investment Rationale and Strategic Outlook

FAB's combination of AI-driven innovation, diversified revenue streams, and capital strength creates a compelling case for long-term investors. The bank's guidance for 2025 includes high single-digit loan growth, a cost of risk below 75 basis points, and a CET1 ratio above 13.5%, all of which signal disciplined growth. With the UAE's GDP projected to grow 2.5–3% annually through 2025, FAB is uniquely positioned to capitalize on domestic opportunities while leveraging its global footprint to mitigate regional risks.

For investors, the current valuation offers a margin of safety. FAB's forward P/E of 10.2x implies a 25% undervaluation relative to its historical average and a 14% discount to the sector. Given its RoTE of 20.5% and a dividend yield of 4.5%, FAB presents a rare mix of income and growth potential.

Conclusion: A Strategic Buy for Resilient Growth

First Abu Dhabi Bank's record H1 2025 results are not just a testament to its operational excellence—they are a signal of its strategic alignment with the future of banking. As AI reshapes financial services and ESG becomes a core investment criterion, FAB's forward-thinking approach positions it to outperform peers. With its balance sheet fortified and valuation undervalued, FAB represents a rare opportunity in the UAE banking sector: a high-conviction, long-term investment in a company that is redefining its industry.