Fitch Solutions: Global Rate Cuts to Pressure Banks’ Profitability Amid Tariffs, Commercial Real Estate Risks
Most central banks worldwide are expected to continue easing monetary policy in the second half of 2025, Fitch Solutions has projected.
The research firm said the European Central Bank (ECB), the US Federal Reserve, and the Gulf Cooperation Council (GCC) are likely to cut their benchmark policy rates by a combined 50 basis points before the year ends.
The forecast was contained in its “Mid-Year Update: Banking Key Themes for 2025”, which highlighted the implications of global monetary easing, tariffs, and structural pressures in commercial real estate (CRE) markets on banks’ performance.
According to Fitch Solutions, lower interest rates will weigh on banks’ net interest income, eroding profitability. It noted that this trend is already evident among lenders in the US and Europe.
“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 stated.
In Ghana, the Monetary Policy Committee (MPC) of the Bank of Ghana has already reduced its policy rate by 650 basis points since the beginning of 2025, underscoring the global shift towards monetary easing.
Tariff Risks
The report also flagged heightened risks from President Donald Trump’s April 2025 tariff announcement, which sparked significant market turbulence and weighed heavily on bank share prices globally.
Although the tariffs did not directly target banks, Fitch Solutions observed that lenders remain exposed to secondary effects such as slower economic growth, volatile exchange rates, and shifting interest rate expectations. These dynamics, it warned, could dampen investor confidence, lending activity, and mergers and acquisitions (M&A).
“While large US banks with strong capital positions have largely absorbed the initial shocks, banks with greater tariff exposure—such as HSBC, which is heavily oriented towards Mainland China, and some Spanish lenders—saw more pronounced declines in their share prices immediately after the announcement,” the report noted.
It added: “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.”
Commercial Real Estate Strains
On the real estate front, Fitch Solutions highlighted that elevated interest rates have worsened structural weaknesses in the office sector, where demand remains subdued due to post-pandemic shifts to remote working.
In the US, overdue commercial real estate (CRE) loans rose to 1.6% in the first quarter of 2025—the highest since 2014. Smaller regional lenders were described as most vulnerable given their high CRE loan concentrations, while larger banks remain better shielded 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,” Fitch Solutions cautioned.
In Europe, banks’ exposure to the US CRE market is limited, though Deutsche Bank stands out as the most exposed. German lenders face their own domestic challenges, with CRE loans accounting for 9.9% of total loans, and non-performing loans in the sector rising to 5.9% in the fourth quarter of 2024.
