CI Capital stated that although the profitability of Gulf banks, especially Saudi Arabia, will decline overall, the decline in interest rates will support growth in loans, fee income and ease financing pressures.
This implies that the decline in bank rates as an initial response to the decline in interest rates creates good entry points for medium-term investors.
It advised that the investment strategy should be unconventional in the interest rate cut cycle, by focusing on banks that lend more to companies as demand for lending from them will increase with the reduction in interest rates, especially considering the large government spending on projects. It also believes that banks that focus on retail lending will need larger interest rate cuts to stimulate a significant increase in demand for borrowing, as reported by Arabic daily Al Anba.
CI Capital expects the net profit margin to decline by 20 basis points during 2025-2026, and the return on shareholders’ equity before tax for the period 2025-2026 to decline by 50 basis points from the expected levels for 2024 to 16.6%.
