Covid-19: New wave of GCC bank mergers gathering pace

Dubai - Lenders grappling with the economic fallout of the pandemic.

By Issac John

Published: Wed 7 Jul 2021, 5:26 PM

A second wave of mergers and acquisitions (M&A) in GCC banking sector is gathering pace as cash-strapped lenders grapple with the economic fallout of the pandemic that broke out 16 months ago.

The so-called second wave of bank mergers follows an earlier run of M&A in the region – seen most prominently in the UAE – triggered by the 2014 oil price slump, analysts at Oxford Business Group said.

Since the adverse effects of the 2020 shock are likely be felt for a long time, particularly in the UAE, Oman and Bahrain, and less so in Saudi Arabia and Qatar, a second wave of M&A could sweep further across the region as the full impact of the subdued economic environment becomes more visible, OBG said in a report.

While a large slice of the M&A action has been focused on the UAE, after two decades with no bank mergers, Saudi Arabia has also seen two major developments in recent times.

Just before the onset of the pandemic, the GCC banking sector was undergoing a major consolidation phase with 20 banks negotiating mergers and acquisitions with an estimated $1 trillion worth of assets.

The UAE, home to 21 local banks and 27 foreign banks serving a population of fewer than 10 million people, has been leading the drive with the highest number of mergers both in terms of value and volume. In 2019, six mergers and acquisitions were being negotiated in the UAE worth $625.25 billion and two in Saudi Arabia worth $256 billion and one each in Kuwait and Oman.

The UAE set the consolidation trend way back in 2007 with the merger of Emirates Bank and the National Bank of Dubai to form Emirates NBD, and kept the momentum with the creation of First Abu Dhabi Bank through the merger of National Bank of Abu Dhabi and First Gulf Bank in 2017.

In May 2019, Abu Dhabi Commercial Bank merged with Union National Bank in May and the new entity took over Al Hilal Bank as its Islamic arm. The merged entity became the UAE’s third-largest bank, with an estimated $114.4 billion in assets.

Dubai Islamic Bank was the latest to join the M&A spree, when it fully acquired Noor Bank in January 2021.

In 2018, Saudi British Bank and Alawwal Bank announced a merger move, This move was finally tied up in March this year, creating Saudi Arabia’s third-biggest bank, OBG said.

“Even more significant has been the emergence of the Saudi National Bank (SNB), which formally began operations on April 1, becoming the largest financial institution in the Kingdom and a major regional player,” OBG report said.

SNB was formed out of the merger of two leading institutions, after the National Commercial Bank last year combined with the Samba Financial Group.

With over $239 billion in total assets and $34 billion in shareholder equity, the new entity boasts strong liquidity and capital buffers. In its maiden earning quarter, it posted net income of $909 million.

According to global ratings agency S&P, SNB will “sharply change the landscape in corporate lending” in both the kingdom and more broadly the region.

An analyst with S&P said the second wave of M&A might involve consolidation across different GCC countries or emirates in the UAE, for example. "This could mean more aggressive moves by management than those seen in the past. The added hurdles of convincing boards and shareholders, who face the possibility of seeing their assets diluted or losing control, might be easier if they have to recapitalise their banks anyway."

Khalil Ibrahim Al Sedais, managing partner, Riyadh at KPMG, said there is a bright future for Saudi Arabia’s banking industry which performed better than it ever has over the past year. “With the sector’s total assets crossing $799.9 billion and total deposits approaching $533.2 billion mark, generally the banking system is in great shape.”

Qatar also saw some significant activity in terms of M&A in the immediate aftermath of Covid-19’s spread around the region.

Masraf Al Rayan announced a potential merger with Al Khaliji Commercial Bank on June 30 last year – an announcement that sent Al Khaliji’s shares soaring.

On January 7 this year, the Qatar Financial Markets Authority confirmed that it had approved the tie-up, creating Qatar’s second-largest lender – even if it is still six times smaller than Qatar National Bank – and one of the region’s largest Shariah-compliant groups.

In Bahrain, the planned acquisition of Ahli United Bank, its largest financial institution, by Kuwait Finance House, was postponed due to the pandemic, and as yet no timeline has been announced for its continuation. If this M&A goes ahead as planned, it would create the GCC’s sixth-largest bank, with over $100 billion in assets.

File photo
File photo

More news from Business