Goldman Sachs considered that banks in the Gulf Cooperation Council (GCC) region are among the best positioned in emerging markets to manage higher U.S. interest rates, given that their local monetary policy remains broadly aligned with their U.S. counterpart. It noted that interbank rates in the GCC increased significantly during 2018, with the average interbank rate growing by an average of 55 basis points last year. However, it revised downward its forecast for the number of U.S. interest rate hikes this year from four to two. As such, it anticipated that a slowdown in the pace of increase in global rates would likely limit the expansion of the net interest margins of GCC banks in the short- to medium term. It expected the banks' net interest margins to expand by nine basis points on average in 2019, driven by hikes that already occurred, while it anticipated a contraction in net interest margins in 2020 as the pace of interest rate hikes slows down. In parallel, it noted that lower interest rates could reduce the pressure on GCC economies, given that higher local rates have been driven by the increase in global interest rates. Further, it said that lower interest rates would limit the shift from current and saving accounts (CASA) to time deposits, which could reduce the cost of funding. It added that the expansion of the banks' net interest margins was mainly driven by access to low-cost CASA funding. Further, Goldman Sachs expected loan growth to be muted in GCC countries given the weakness in the consumer and real estate sectors. It also anticipated asset growth to remain subdued in the context of higher interest rates and relatively weak oil prices. 
Source: Goldman Sachs