A viable option for GCC banks to stay competitive is by consolidation through mergers and acquisitions as the region is largely overbanked, a researcher has said.
GCC banks, while reasonably big in local terms, continue to be small in size when compared to global peers, points out M R Raghu, executive vice-president and head (Research) at Markaz.
Consolidation of banks into larger entities would give them the size required to compete in the global market place.
The economy and the banking sector as a whole would undoubtedly benefit from the change in dynamics, as stronger and more resilient banks are expected to emerge out of this phase.
“However, these positive factors do not necessarily guarantee that these mergers would be value accretive to the shareholders involved,” said Raghu, also managing director, Marmore Mena Intelligence, a research subsidiary of Markaz at a seminar on “GCC Banking Mergers”.
The seminar was derived from Marmore’s report on ‘GCC banking mergers’, which identifies and analyses some of the previous high-profile mergers in the region based on their pre and post-merger performance.
Further, the research report also analyses the operating conditions, shareholder perception and economic conditions when these mergers took place and examines their impact on the outcome. Based on these factors, the report concludes whether these mergers have created value for the shareholder.
The report chose three mergers that have taken place in the past two decades to conduct a pre and post-merger analysis based on key performance metrics.
The performance metrics taken into consideration include Return on Equity (RoE), Return on Assets (RoA), cost-to-income ratio, revenue growth and earnings per share growth.
Gauging the changes in RoA and RoE before and after the merger allows us to identify how efficient the management has been in using the combined asset and equity base of both banks to generate more income.
The views and opinions expressed in this article are those of the author and do not necessarily reflect the views and opinions of Al Bawaba Business or its affiliates.
© Gulf Times Newspaper 2021