It's early to assess merger: Moody's

ABU DHABI — In response to reports of a potential merger involving Emirates Bank International PJSC (EBI) and National Bank of Dubai PJSC (NBD), Moody's Investors Service has not taken any rating action, noting that it is too early to assess the outcome of these discussions and the potential impact on the banks' ratings.

By A Staff Reporter

Published: Fri 9 Mar 2007, 9:59 AM

Last updated: Sat 4 Apr 2015, 10:47 PM

Moody's will await details regarding the form of the merger, the potential synergies to be derived and the challenges associated with the execution of such a transaction.

The two banks have announced that they are in discussions about the possible merger, subject to shareholder and regulatory approval. In the event that the merger comes to fruition, the merged entity could become the largest bank in the United Arab Emirates, with estimated assets of Dh165 billion, making it one of the largest banks in the GCC. Furthermore, the merged entity would enjoy leading market shares in a number of business lines in the domestic market, particularly in Dubai.

Moody's also notes that the common ownership of the two banks could facilitate this merger. The government of Dubai, with a 77 per cent stake in EBI and a 14 per cent stake in NBD, appears to have been a catalyst for these discussions. Moody's believes that the merged institution could enjoy a significantly enhanced franchise with diversified business lines, and this could have positive rating implications.

Moody's adds that the banking system in the UAE is one of the most fragmented in the region. Consequently, consolidation moves are welcome as they contribute to the creation of a more competitive environment, with stronger and more diversified institutions that could play a more active role in the domestic and regional markets.

If this merger goes ahead, Moody's believes that it could be a prelude to further consolidation in the market, especially given that a number of other institutions have common shareholders.

Emirates Bank International is currently rated A1/Prime-1/C-, with a stable outlook; and National Bank of Dubai is rated A1/Prime-1/D+, also with a stable outlook.

Headquartered in Dubai, Emirates Bank International reported total assets of Dh95.9 billion in 2006, while National Bank of Dubai reported total assets Dh69.3 billion.