S&P forecast continues GCC banks' strong performance until 2024
(MENAFN) Standard & Poor's Ratings Agency (S&P) anticipates that banks in the Gulf Cooperation Council (GCC) countries will maintain strong performance throughout 2024, driven by increased lending volumes, higher fee income, stable margins, and effective cost management, provided there are no unforeseen shocks. The agency's recent report highlights that non-oil sectors in Saudi Arabia and the UAE have significantly contributed to a 10.4 percent annual lending growth among the 45 largest GCC banks in the first half of 2024, compared to 6.7 percent in 2023. Despite a prolonged period of rising interest rates, which has kept profit margins steady at 2.7 percent, banks have continued to show strong profitability, with a return on assets improving to 1.74 percent from 1.65 percent at the end of 2023.
However, S&P notes that interest rate cuts expected in 2025 could diminish income margins for GCC banks, potentially leading to a 12 percent reduction in net profits. This projection is based on the premise that each 100 basis point reduction in interest rates could lower net income by approximately 8 percent. Despite this, the anticipated rate cuts could benefit highly leveraged corporates and retail clients in the GCC, potentially enhancing asset quality. Additionally, the agency believes that banks' effective cost control measures might mitigate the overall impact of these rate cuts. As a result, while banks face potential challenges from reduced interest margins, their solid performance in the near term and strategic financial management are expected to support their stability and growth.
MENAFN05092024000045015682ID1108640191
Legal Disclaimer:
MENAFN provides the information “as is” without warranty of any kind. We do not accept any responsibility or liability for the accuracy, content, images, videos, licenses, completeness, legality, or reliability of the information contained in this article. If you have any complaints or copyright issues related to this article, kindly contact the provider above.