The solid performance of the Gulf Cooperation Council (GCC) banks in the first half of the year indicates that “good performance should continue throughout 2024,” absent any unexpected shock,  according to S&P Global Ratings.

The banks have benefited from increasing lending volumes, higher fee income, stable margins, and strong cost efficiency.

“We expect sustained strong performance over the remainder of the year will help GCC banks navigate potential turbulence,” the rating agency said, adding conservative dividend payouts will likely help maintain or further strengthen the capitalization of banks.

S&P expects the US Federal Reserve to cut rates by 150 basis points (bps) between September 2024 and end-2025, which will likely shave 12% from the bottom line of the GCC banks, based on 2023 disclosures.

Each 100-bps rate drop reduces net income by 8% for these banks, S&P said.

However, the 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.

(Editing by Seban Scaria seban.scaria@lseg.com)