RIYADH: Saudi banks are predicted to have a considerable boost in profit margins in early 2025, driven by anticipated interest rate reduction that will position them favourably versus their Gulf competitors.
Bloomberg Intelligence recently highlighted the Kingdom’s financial institutions’ strengths, stating that they have higher valuations due to their lower exposure to volatile markets. Their prudent leverage not only positions them favourably, but also enables a strategic increase in profitability as interest rates fall.
Furthermore, their adept control of the tax environment gives them a competitive advantage over other Gulf states. In addition to these factors, Saudi Arabia’s significant role in a $2 trillion construction pipeline in the Middle East and North Africa region, accounting for 34% of the total, suggests that the country’s banks will increasingly need to secure funding to support a wide range of ongoing projects.
Following the US Federal Reserve’s decision on September 18, Saudi Arabia, the UAE, and Bahrain’s central banks slashed interest rates by 50 basis points, while Qatar cut deposit, lending, and repo rates by 55 basis points.
This development marked a pivot in US monetary policy following two years of rate hikes targeted at containing inflation.
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