S&P expects GCC banks to maintain strong run in 2024

GCC banks are set for strong performance through the remainder of 2024, absent any unexpected shock, thanks to increasing lending volumes, higher fee income, stable margins, and strong cost efficiency, S&P Global Ratings said in a recent report.

The agency expects sustained strong performance over the remainder of the year will help GCC banks navigate potential turbulence. "Alongside solid results, conservative dividend payouts will likely help maintain, or further strengthen, banks' capitalization," it noted.

For 2025, expected rate cuts would trim margins but could be supportive of asset quality, S&P said.

S&P expects the Federal Reserve to cut rates by 150 bps between September 2024 and end-2025. This will likely shave 12% from the bottom line of the GCC banks in S&P’s sample, based on 2023 disclosures; each 100-bps rate drop reduces net income by 8% for these banks. This clearly assumes static balance sheets but points to manageable risks.

GCC banks remain exposed to potentially slower economic growth because of oil market dynamics (production and prices), the potential unwinding of imbalances in real estate and other cyclical sectors, and geopolitical risks that could shift investor sentiment, the agency said.