Delay in Rate Cuts Boosts GCC Banks' 2024 Profit Outlook

GCC, 20 May, 2024 : Analysts predict that Gulf Cooperation Council (GCC) banks will sustain strong profitability throughout 2024 due to the postponed rate cuts by the US Federal Reserve. The delay in rate adjustments is expected to benefit banks in the region, which have historically benefited from increases in US interest rates.

However, analysts anticipate a slight decline in profitability for GCC banks in 2025 as the Fed may initiate rate cuts, prompting most GCC central banks to follow suit. The delay in rate cuts is also expected to reduce unrealized losses accumulated by GCC banks over recent years.

In 2023, listed banks in the GCC witnessed a significant 23.1% year-on-year increase in combined net profit, reaching $53.2 billion, with UAE-listed banks leading the surge. The average return on assets for the top 45 banks in the region rose to 1.7% by year-end 2023.

Despite market expectations for rate cuts in 2024, the Fed held its policy rate steady in its May 1 meeting. Chair Jerome Powell stated that rate adjustments would only occur when policymakers are confident in sustained progress toward the central bank’s 2.0% inflation target.

S&P Global Ratings credit analyst Mohamed Damak expects GCC banks' profitability to remain robust in 2024, citing supportive economies, contained leverage, and high precautionary reserves as contributing factors.

While some banks may face greater vulnerability to rate cuts, Damak suggests that higher volumes and reduced unrealized losses could help mitigate the overall impact on GCC banks' profitability.

Despite expectations for rate adjustments in the coming year, the exact impact on GCC banks remains uncertain, with variables such as balance sheet structures and yield curve shifts playing crucial roles.

Source : www.zawya.com