Muscat: The delay in interest rate cuts by the US Federal Reserve is good news for Gulf Cooperation Council (GCC) banks, leading international credit rating agency S&P Global Ratings said in a statement.
“S&P Global Ratings expects GCC banks' profitability to remain strong in 2024 thanks to the delay in rate cuts. We also expect asset quality to remain resilient despite the higher-for-longer rates thanks to supportive economies, contained leverage, and a high level of precautionary reserves. We anticipate a slight deterioration in profitability in 2025, as the Fed could start cutting rates in December 2024, and most GCC central banks are likely to follow suit to preserve their currency pegs. However, we believe that several factors will mitigate the overall effect,” it commented.
According to the US-based agency, every 100 basis point (bp) drop in rates shaves an average of around 9 per cent off rated GCC banks' bottom lines. This is based on the GCC banks' December 2023 disclosures and assumes a static balance sheet and a parallel shift in the yield curve.
On a positive note, lower rates are also likely to reduce the amount of unrealized losses that GCC banks have accumulated over the past couple of years, it noted. “We estimate these losses at around $2.8 billion for the GCC banks we rate, or 1.9 per cent on average of their total equity.”
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