GCC Banks Face Profitability Challenges Amid US Fed Rate Cuts

Gulf Cooperation Council (GCC) banks are set to navigate through a period of potential profitability challenges in the coming years, as per the latest insights from S&P Global Ratings. The GCC region, comprising countries like Saudi Arabia, the UAE, and Qatar, is closely tied to the monetary policies of the US Federal Reserve due to currency pegs.

In 2024, GCC banks are expected to maintain strong profitability, thanks to the delay in interest rate cuts by the US Federal Reserve. Despite the US Fed keeping its benchmark level steady, S&P foresees robust asset quality in the GCC region, supported by stable economies and prudent financial practices.

However, the outlook for 2025 suggests a potential decline in profitability as the US Fed gears up for rate cuts. This anticipated shift could impact GCC banks, with a projected average decrease of around 9 percent in their bottom lines. Yet, there are factors in place to mitigate this impact, including lower rates reducing unrealized losses and strategic responses from bank management.

Looking ahead to 2025, as rates are expected to decrease further, GCC banks may face challenges in maintaining profitability. S&P forecasts a gradual rate cut by the Fed throughout the year, which could lead to adjustments in banking strategies to counter the effects of declining rates.

While the GCC banking sector may encounter some headwinds in the near future due to external factors like US Federal Reserve rate cuts, proactive measures and strategic planning can help mitigate the impact. It is essential for GCC banks to adapt to changing market conditions and focus on sustainable growth strategies to navigate through these challenges successfully.