Qatar’s Banking Margins Set to Decline Amid Lower Rate Expectations: S&P Report

Margins in Qatar’s banking sector are projected to shrink modestly by the end of 2025 due to anticipated interest rate cuts, even as asset quality improves, according to a recent report by global credit rating agency Standard and Poor’s (S&P).

The report highlights that stabilizing external debt, coupled with increased funding costs from pricier domestic sources and rate reductions, will likely compress margins by 10 to 20 basis points (bps) within the next two years.

The easing of oversupply in Qatar’s real estate market, a legacy of the 2022 FIFA World Cup, is expected to benefit banks by reducing their cost of risk as borrowing becomes more affordable under lower rates.

While declining rates could reduce net interest income for banks in emerging markets across Europe, the Middle East, and Africa (EMEA), S&P suggests this impact may be mitigated by stronger lending growth, improved asset quality, reduced risk costs, and greater reliance on local funding sources.

Despite the expected monetary easing, credit growth in Qatar is projected to decelerate to an average of 5% by 2025, compared to an average of 8% during 2019-2022. This slowdown is attributed to the completion of major infrastructure projects, which has lowered funding needs.

S&P anticipates gradual monetary easing but cautions that this trend could face disruptions. Key risks include persistent consumer resilience, inflationary pressures, and geopolitical uncertainties such as potential U.S. trade tariffs and immigration curbs, which could elevate inflation in the United States.

After reducing interest rates by 100 bps in 2024, the U.S. Federal Reserve is expected to adopt a slower pace, with an additional 75 bps reduction forecast for 2025, less than earlier predictions.

The European Central Bank (ECB), however, is expected to expedite its rate cuts in response to weak economic confidence and improved clarity on disinflation trends. S&P now projects the ECB’s main policy rate will reach 2.5% by mid-2025, earlier than the previously expected September timeline.

The report notes that lower rates will affect emerging markets in the EMEA region differently, depending on their banking systems’ reliance on external funding, alignment with developed market monetary policies, and overall debt dependence.

For banking systems with significant reliance on external funding—such as those in Qatar, Turkiye, and Saudi Arabia—lower rates and increased global liquidity are expected to reduce funding costs.

S&P advises monitoring factors such as banks’ strategic responses, balance sheet adjustments, and global narratives surrounding monetary policy shifts to assess the long-term impact of fewer rate cuts.