GCC Banks' Profitability to Remain Strong in 2024 Despite Delayed Fed Rate Cuts: S&P Global Ratings
The US Federal Reserve's delay in interest rate cuts will keep profitability strong for Gulf Cooperation Council (GCC) banks in 2024, according to S&P Global Ratings.
This is because most GCC central banks align their interest rates with the Fed's to maintain their currency pegs.
S&P Global Ratings also expects asset quality to remain robust in 2024 due to supportive economies, contained leverage, and high precautionary reserves.
However, a slight profitability deterioration is anticipated in 2025 when the Fed may start cutting rates, and GCC central banks are expected to follow suit.
S&P Global Ratings believes that while a drop in interest rates will negatively impact the bottom lines of banks in the Gulf Cooperation Council (GCC) region, several factors may mitigate the overall effect.
The impact is estimated to be around a 9% reduction for every 100-basis point decrease in rates, assuming a fixed balance sheet and a parallel shift in the yield curve based on banks' December 2023 disclosures.
S&P Global Ratings also expects asset quality to remain robust in 2024 due to supportive economies, contained leverage, and high precautionary reserves.
However, a slight profitability deterioration is anticipated in 2025 when the Fed may start cutting rates, and GCC central banks are expected to follow suit.
S&P Global Ratings believes that while a drop in interest rates will negatively impact the bottom lines of banks in the Gulf Cooperation Council (GCC) region, several factors may mitigate the overall effect.
The impact is estimated to be around a 9% reduction for every 100-basis point decrease in rates, assuming a fixed balance sheet and a parallel shift in the yield curve based on banks' December 2023 disclosures.
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