Most central banks across the globe will continue cutting their policy rates in the second half of 2025, Fitch Solutions has stated.
For instance, it expects the European Central Bank (ECB), the US Federal Reserve, and the Gulf Cooperation Council (GCC), to cut policy rate by a cumulative 50 basis points by the end of 2025.
It disclosed this in its “Mid-Year Update: Banking Key Themes For 2025”.
According to the UK-based firm, lower interest rates will weigh on banks’ net interest income and therefore profitability trend is already visible among US and European banks. “Profitability resilience will depend largely on the extent to which rate cuts reinvigorate loan demand, as well as performance in banks’ non-interest income segments”, it added.
The Monetary Policy Committee (MPC) of the Bank of Ghana has already cut its policy rate by 650 basis points since the beginning of this year.
US Tariffs
President Donald Trump’s April 2025 tariff announcement triggered significant market turbulence, weighing on bank share prices globally.
Although banks were not subject to tariffs, they remain vulnerable to secondary effects of tariffs. These include slower economic growth, volatile exchange rates and shifting interest rate expectations that can undercut investor confidence, lending activity and mergers and acquisitions (M&A) deals.
Fitch Solutions said while large US banks with strong capital positions have largely absorbed the initial shocks, banks operating in regions with heavy tariff exposure, such as HSBC, which is oriented towards Mainland China, and certain Spanish lenders, experienced more pronounced declines in their share prices immediately after the announcement.
“This politically driven uncertainty underscores the need for banks to weigh the potential benefits of monetary easing against the risks created by new tariffs and heightened geopolitical tensions when making strategic decisions”, it added.
Interest Rates
In Europe and the US, high interest rates have intensified structural problems in the office sector, where demand has fallen post-pandemic due to the rise in home working.
In the US, Fitch Solutions, said overdue Commercial Real Estate (CRE) loans rose to 1.6% in the first quarter of 2025, the highest since 2014, with smaller regional lenders most exposed due to their high CRE loan concentrations, adding, larger banks remain better cushioned by strong capital buffers.
“While monetary easing should relieve some cyclical pressures, and there are some signs that US CRE prices are stabilising, structural demand issues will remain unless office attendance increases more substantially. In Europe, banks generally have limited exposure to the US CRE market, with Deutsche Bank being the most exposed.”
It added that German banks are particularly affected by CRE issues, with CRE loans at 9.9% of total loans and non-performing loans in this segment up to 5.9% in the fourth quarter of 2024.
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