GCC Banks will Continue to be Profitable in 2024 Because the US Federal Reserve’s Rate-Cutting Delay

GCC Banks will Continue to be Profitable in 2024 Because the US Federal Reserve’s Rate-Cutting Delay

RIYADH: S&P Global Ratings predicts that Gulf Cooperation Council banks’ profitability will continue to be high in 2024 despite the US Federal Reserve delaying its interest rate reductions.

This occurs while the majority of GCC central banks typically follow Washington’s rate decisions to maintain their currency pegs. In early May, the US Federal Reserve maintained its benchmark rate for the sixth consecutive period, ranging from 5.25 percent to 5.50 percent.

The US credit rating agency stated in a statement that because of strong economies, controlled leverage, and high levels of precautionary reserves, it also anticipates that asset quality will remain strong despite the ongoing high interest rates.

The Fed may begin reducing rates in December 2024, and most GCC central banks are likely to follow suit to maintain their currency pegs, so we expect a slight deterioration in profitability in 2025,” the statement read. But we think several things will lessen the overall impact,” it continued.

Furthermore, S&P revealed that an average 100 basis point reduction in interest rates results in a 9 percent decrease in the profitability of the banks in the region. This assumes a fixed balance sheet and a parallel shift in the yield curve and is based on the December 2023 disclosures from the GCC banks.

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