Several Gulf banks recorded strong profits in the first quarter, largely fuelled by increased lending. However, banks in Qatar and the UAE appear particularly exposed to potential interest rate cuts.
Except for Kuwait, the currencies of the other five Gulf nations are pegged to the US dollar, meaning their interest rates closely mirror those set by the US Federal Reserve.
From early 2022 to mid-2023, US interest rates rose sharply from near zero to a 24-year high of 5.25–5.5%. This trend significantly boosted the net interest margins of regional banks, enhancing overall profitability.
That momentum is now reversing, with the Federal Reserve signalling that it may implement two more rate cuts this year.
Following previous reductions, the US benchmark rate now stands between 4.25% and 4.5%.
According to Elena Sanchez‑Cabezudo of EFG Hermes in Dubai, Qatar showed particular sensitivity to last year’s rate cuts due to its unique market structure.
As only about 10% of Qatar’s population are nationals, the majority are expatriates who often repatriate income. This results in deposit bases being concentrated in government entities, large corporations, and wealthy individuals.
Sanchez‑Cabezudo noted that these depositors typically exert substantial leverage during rate shifts. When interest rates fall, they expect rapid downward adjustments on loans but resist similar cuts on their deposits.
