GCC banks will prosper under Trump’s presidency

Nathan Howard/Reuters

It is reasonable to assume that US president Donald Trump does not spend much time thinking about the future of Gulf banks. 

But let us hope that regional banks are spending some time thinking about Trump – or at least about the effect that his presidency may have on their prospects and profitability over the next four years. 

Over the past month we’ve seen trade tariffs announced and then, in some cases, withdrawn; threats to occupy Greenland and parts of Panama; and a proposal to cleanse Gaza ethnically. 

And that’s just Trump speaking. 

Confirmations of Trump’s picks for senior government roles are proceeding quickly. Scott Bessent, treasury secretary; Chris Wright, energy secretary; Marco Rubio, secretary of state; and John Ratcliffe, director of the CIA, have all been confirmed. 

Elise Stefanik, the nominee for US ambassador to the UN, has been approved by the Senate committee on foreign relations and is assured of approval when the full Senate convenes.   

All these top picks are Trump loyalists who share his world view. 

So, what can we expect in the years ahead? 

There are a few major points to keep in mind. 

In terms of policy, Trump’s agenda is domestic rather than orientated to foreign policy. Bellicose statements on Greenland and Panama relate to the security of resources for the US economy and to the control of trade routes essential to the prosperity of US firms. The same is true of the flurry of announcements on trade tariffs. 

We have already seen that policy pronouncements can be rowed back after the initial shock and awe

In terms of his personality and style, Trump is predictable. True, policy statements often appear to be spontaneous (I’ve often wondered how much thought had gone into “We’re going to build a wall, and Mexico is going to pay for it” the first time Trump uttered it, in 2015), but they are guided by an approach to politics that is transactional, and which assumes that transactions always have winners and losers.

Trump also has a burning desire to be respected and liked. 

We have already seen that policy pronouncements can be rowed back after the initial shock and awe has created the desired effect of putting a particular issue at the top of other people’s policy agendas. 

US dollar interest rates are a central concern for GCC banks, since five of the six states have their currencies pegged to the dollar, and the currency of the sixth, Kuwait, is heavily weighted to the dollar.

But US interest rates are determined by the Federal Reserve Bank, whose chairman, Jay Powell, made very clear that the Fed would continue to base its policy on economic data not politics, when he testified before the Senate Banking Committee on February 11. 

It is unlikely that the US will descend into a situation such as we have occasionally seen in Turkey in recent years, where the president has engineered a change in interest rates by replacing senior central bank officials. 

Powell’s chairmanship of the Fed ends in May 2026 and he has said that he will not resign early. Whether a president can remove a Fed chairman is a grey area, and it has never been done. 

Of course, the chair does not set interest rates alone: the decision is taken by the 12-member Federal Open Market Committee, comprising governors of the Federal Reserve Board and five Federal Reserve Bank presidents. The former are appointed by the president, for 14-year terms, and the latter are appointed by the directors of their own reserve banks. 

Even if Trump appoints a sympathetic official to replace Powell next year, interest rate policy will continue to be driven by economics and data in the years ahead.

Global trade patterns

But we will see volatility in global trade patterns, as tariffs are announced and then withdrawn. Trade may also be disrupted if a permissive foreign policy leads to more geopolitical conflict, such as Russia’s invasion and occupation of Ukraine.

We will see pressure on oil prices as supply of crude oil and gas increases in the US in response to looser regulation on drilling. 

We may see the compliance pressure on banks decrease as law enforcement in the US is streamlined and directed to domestic issues such as illegal immigration and drug use, rather than global concerns such as money laundering. 

The enthusiasm of Trump and his family for large real estate developments will be welcome in the Gulf, given the outsize role that real estate plays in many of the region’s economies. 

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In the political realm, the region’s leaders can expect to be left to rule their countries as they wish, without calls from the US at least, to reform, either politically or economically.

The future of the climate change agenda, and broader environmental issues, is more difficult to predict. Certainly, Trump may abandon many of the commitments made by the US in recent years. But European countries, and many others, will not. 

In the Gulf states themselves, the consequences of (even) higher temperatures and rising sea levels are immediate and obvious to all, as are the opportunities presented by improvements in the science of solar and wind power. 

Gulf governments may dampen their public statements on combatting climate change, but don’t expect policy action to slow. 

The challenge for Gulf banks will be to keep their balance and their long-term focus in what will be a volatile policy landscape. They will not want to make long-term decisions in response to pronouncements that may soon be adjusted or abandoned. 

The Trump administration presents no threat to Gulf banks. But it will be a bumpy ride!

Andrew Cunningham writes and consults on risk and governance in Middle East and sharia-compliant banking systems.