George Nasra of IBQ: "Regional Megabank: A Dream or a Possibility?"
IBQ is participating in the MEED Middle East Retail Banking 2010 Conference which is currently being held in Abu Dhabi on 27 and 28 September. Attending the event are scores of senior banking and financial figures to discuss the future of the regional banking sector and exchanged forward-looking thoughts and insights. The event also honoured Ibrahim Dabdoub, Group Chief Executive Officer of National Bank of Kuwait, with the prestigious MEED Leadership in Banking Award honoring his track record in the industry.
George Nasra, Managing Director of IBQ, spoke alongside other bankers about the future of regional banking in the opening CEO panel session that cast the limelight on M&As, transparency and capital adequacy.
Nasra opened the CEO panel with a presentation putting the regional banking landscape under close scrutiny. Under the headline "Consolidation of the regional banking sector – creation of a regional megabank: a dream or possibility?", Nasra reviewed the prevailing regional banking scene and explored the different globally successful M&As models which could lead to the creation of a super regional financial powerhouse in the Middle East.
Commenting on the banking scene that is smarting out of the financial crisis Nasra said: "The impact of the global financial crisis on the GCC banking sector, as was reported, has been limited. The profits of the top 25 banks in the GCC have reached their peak in the second half of 2008 followed by a dip in 2009 and the total banking assets of those banks reached a total of USD 860.1 Billion in 2010 up from a total of USD 534.9 Billion in 2008. Recently, growth has restarted and profits have recovered to those nearing pre-crisis levels."
On prevalent trends, Nasra noted: "We're seeing new "local champions" or "regional shapers" emerging. While impressive in operations and growth rate, few is venturing outside the boundaries of their local marketplace to generate business. Compared to their global counterparts, those banks still lack in size. For instance, if we look at the cumulative assets of the top 10 ME banks, we'll see that they're still below international par with a total of USD 529 Billion in comparison to the massive USD 1,529 Billion of the Spanish Banco Santander alone, which is the 13th largest bank in terms of assets."
Nasra remarked that the total value of M&As deals in the ME have amounted to USD 15 Billion in the last 5 years and are still lower than those in the US and Europe. Most of the M&As have been particularly based on acquisitions of smaller players to gain access to newer markets. Nasra continued with an overview of two M&As models, the "Merger of Equals" and the "Serial Acquisitions" giving respective examples of Nordia Bank and Banco Santander, reviewing their benefits to Middle Eastern cross-border banking operations.
Nasra also delineated potential region-specific obstacles and challenges which could hamper the progress of an M&A of the sort. These obstacles include regulatory restrictions and ownership structures, the ability to reach mutually acceptable deal terms, branding and emotional connections, governance and composition of the board of directors, location of headquarters, as well as other vital challenges to executing successful integration that rely on sound business models and solid management benches among other pre-requisites.
While there are significant opportunities for a major change in the Middle Eastern banking market consolidation, Nasra concluded, the 'jury is still out' whether and how fast this would happen, and if so, which of the prevailing M&As models would be most successful.