Standard & Poor's Ratings Services said today it revised its outlook on Dubai-based banks Emirates Bank International PJSC (EBI) and National Bank of Dubai (NBD) to positive from stable, following the announcement of their planned merger. At the same time, Standard & Poor's affirmed its 'A/A-1' ratings on both banks.
The merger plans were approved by Dubai's ruler, Sheikh Mohamed Bin Rashid Al Maktoum, on March 6, 2007. The government of Dubai is EBI's majority shareholder and also one of the largest single owners of NBD. If confirmed, the merger is expected to create one of the largest financial services institutions in the Middle East and a systemically important bank in Dubai. The merged entity will display strong financial performance, robust capitalization, sound liquidity, and a well-diversified funding mix. Nevertheless, although name, sector, and business diversification will increase, the merged entity will remain a domestic bank by nature. We expect the merged entity to further explore new avenues to increase geographic diversification.
Synergies are expected to be sizable, as the two merging institutions have so far had different business models: EBI has been very much entrenched in the domestic corporate and retail markets, and has developed good business diversification out of pure lending; NBD has been more focused on corporate banking, and has been a late, but successful, entrant in retail and investment banking, as well as operating in private banking fields. The merged entity should therefore have a number of complementary areas on which to capitalize, while at the same time curbing operating costs and strengthening support functions such as risk management, IT, audit, and compliance, which have all assumed an unprecedented level of importance in both the United Arab Emirates and the Gulf region as a whole.
© 2007 Al Bawaba (www.albawaba.com)
