GCC banks feel the pinch as funding costs rise | GulfNews.com

GCC banks feel the pinch as funding costs rise | GulfNews.com:

"A substantial increase in the cost of funds combined with liquidity squeeze is forcing regional banks and governments to source funding outside their home markets at wider spreads. The rising cost of funds is expected to hurt the profitability of Gulf banks, Arqaam Capital said in a recent report.

Although banks are expected to benefit from a rate hike in terms of gains in return on equity and net interest margins (NIMs) they are being offset by the higher cost of external funding.

“With credit growth slowing down, limited possibilities to boost net interest margins [given tightening liquidity], a market reduction in loan origination fees, banks can only reduce their operating expenses to shield themselves partially from the headwinds,” said Jaap Meijer, head of Research at Arqaam Capital.

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