S&P Global Predicts Strong Profitability and Robust Asset Quality for GCC Banks in 2024

New York, The Gulf Observer: Standard & Poor’s Credit Ratings Agency (S&P Global) has forecasted that the profitability of Gulf Cooperation Council (GCC) banks will remain strong in 2024, with their asset quality staying robust despite a prolonged period of higher interest rates. This resilience is attributed to supportive economic conditions, contained leverage, and substantial precautionary reserves.

In its recent report, S&P indicated that the US Federal Reserve Board (FRB) might start cutting interest rates in December 2024, with expectations that most Gulf central banks will follow suit to maintain their currency pegs. The report anticipates that the FRB will accelerate monetary easing in 2025 as economic growth slows below potential, predicting a 100 basis point reduction in interest rates throughout the year, lowering them to between 4 and 4.25 percent by the end of 2025.

S&P noted that the central banks of most Gulf countries typically mirror the FRB’s interest rate adjustments to uphold their currency pegs. The agency highlighted that delaying interest rate cuts could enhance the profitability of GCC banks.

Over the past two years, Gulf banks have benefited from rising interest rates, and they are expected to continue reaping these benefits in 2024. By the end of 2023, the average return on assets for the largest 45 banks in the region reached 1.7 percent, an increase from 1.2 percent at the end of 2021, S&P concluded.