After a long lull, deals between Gulf banks are kicking up a gear.
Lenders across the region are undergoing their biggest shake up since 2007, with almost a dozen of them involved in takeovers or mergers over the past two years. The companies are bulking up to cope with dwindling government revenues following a drop in oil prices that squeezed deposits. They’re also combining operations in a market seen as overbanked for the population size.
“We will see more bank consolidation in the Gulf Cooperation Council (GCC), with most activity likely in the United Arab Emirates,” said Sergey Dergachev, who helps manage about US$14bn at Union Investment Privatfonds GmbH in Frankfurt. “Compared to Saudi Arabia, the population in the UAE is excessively banked with a few large banks and lots of smaller ones.”
On Monday, two of Oman’s biggest banks said they’ll explore a combination that could create an entity with US$20bn in assets. The latest deal spree is being spurred by the tie-up in 2016 of National Bank of Abu Dhabi and First Gulf Bank to form First Abu Dhabi Bank, the first major merger since National Bank of Dubai and Emirates Bank International nine years previously combined to create Emirates NBD.
There are at least 73 listed banks in the GCC, according to data compiled by Bloomberg. These lenders catered to a population of around 51mn at the end of 2016, according to data compiled by Gulf Research Center. The UAE has 46 commercial banks for 9.5mn people, while Saudi Arabia has 12 local lenders and 14 foreign-bank branches for 33.6mn people, according to central bank data and information from Worldometers.
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Higher compliance costs with the implementation of new accounting standards, rapid technological innovations, the impact of the introduction of value added taxes and the need for stronger corporate governance frameworks are also adding to costs for banks, adding pressure on small- and medium-sized companies to consolidate.
“You can be a comparatively small bank if you have unique competitive edge,” Dergachev said. “But the irony is that most UAE banks are quite similar in their business profile.”