GCC`s Wave Of Bank Mergers Almost Over, Says S&P

Six of the eight mergers since 2014 have benefited from the presence of the same shareholders on both sides of the table, at acquiring and target banks.

Tuesday 28, May 2019 BY KUDAKWASHE MUZORIWA

S&P Global Ratings said that most GCC bank mergers to date have involved lenders with common major shareholders, as such, the pool of banks with similar ownership is now smaller meaning fewer merger and acquisitions (M&A) from now on unless operating environment initiates more bank consolidations.

The current wave of bank mergers and acquisitions in the region is being driven by the desire among banks with the same major shareholders to further enhance efficiency, strengthen franchises and boost pricing power.

S&P stated that given the overbanked nature of some GCC banking systems, further consolidation could help improve banks’ performance and financial stability hence a new wave of M&A motivated by purely economic reasons could follow, but it may take longer to be realized.

The Gulf region is heavily over-banked and lenders are being forced to merge as they seek to stay competitive in an era of lower oil prices. The UAE has 49 commercial banks serving a population of about nine million, while Oman has 20 banks serving a population of about 4.7 million.

Earlier in May, Abu Dhabi Commercial Bank (ADCB) merged with Union National Bank (UNB) and the combined entity acquired Al Hilal Bank, creating a banking group with AED 423 billion in assets. Abu Dhabi’s Mubadala Investment Company owned a 62.5 percent stake in ADCB and 50 percent of UNB through Abu Dhabi Investment Council, while Abu Dhabi Investment Council fully owned Al Hilal Bank.

Similarly, Dubai Islamic Bank (DIB) and Noor Bank are also exploring the possibility of a merger, which is expected create a Shari’ah compliant lender with AED 277 billion ($75 billion) in assets. The Investment Corporation of Dubai is the largest shareholder in DIB with a 28 percent stake and it is also one of the biggest investors in Noor Bank.

In Saudi Arabia, the Public Investment Fund (PIF), which owns stakes in some of the biggest lenders is weighing which banks could be merged to increase scale and competition.

The Kingdom’s sovereign wealth fund is backing a tie-up between National Commercial Bank (NCB) and Riyad Bank, PIF owns about 44 percent of NCB and 22 percent of Riyad Bank.

Consolidation can help banks to develop their franchises, diversify their risk profiles and strengthen capital generation through earnings.