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  • 23-03-20

    Interest rate cuts by UAE, KSA to put pressure on their banks' profitability, reduce their net interest margins

    (MENAFN) According to analysts, the interest rate declines stated by the UAE and KSA will put pressure on their banks' profitability and reduce their net interest margins in 2020.


    On March 4, The Central Bank of the UAE cut interest rates by 50bps and then again by 75bps on March 16 to support the banking sector and economy against the effects of COVID-19; on March 3, the Saudi Arabian Monetary Authority (Sama) also declined its official repo rate by 50bps and by 75bps on March 16 - the lowest level ever.


    The UAE's rates were declined with the US Federal Reserve's decision to drop rates over the pegging of the UAE's dirham to the USD.


    As said by Mik Kabeya, assistant vice-president and analyst at Moody's Investors Service, "the sizeable cut in interest rate will reduce UAE banks' net interest margins [NIMs] because gross yields earned on loans will decline more than the funding cost paid on deposits, and because the rate cut is unlikely to materially increase credit volumes in the current difficult operating environment".

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