Review of GCC bank mergers

Review of GCC bank mergers

Mergers and acquisitions are rare in GCC banking, but there are currently three significant corporate events at various stages of consideration or completion. National Bank of Abu Dhabi and First Gulf Bank have merged to create the biggest bank in the GCC. Saudi British Bank and Saudi Hollandi Bank are in talks to merge, and discussions are under way between three Islamic banks in Qatar.

The merger of National Bank of Abu Dhabi (NBAD) and First Gulf Bank (FGB) was announced in mid-2016 and completed earlier this year. The new bank, called First Abu Dhabi Bank (FADB), published pro forma balance sheet and income statement as at 31 March 2017 showing equity of Dh95,010mn ($26,139mn). This would make it the biggest bank in the GCC, ranked by equity.

At the end of 2016, Qatar National Bank showed equity of $19,465mn. National Commercial Bank of Saudi Arabia had equity of $15, 663mn and Emirates NBD had equity of $14,664mn.

The merger of NBAD and FGB ­– both of which were owned by Abu Dhabi government institutions – has led to speculation of other mergers in the UAE. In April, Abu Dhabi Commercial Bank denied that it was in merger talks with Union National Bank. Both of those banks are majority owned by Abu Dhabi government agencies.

There are now 20 commercial banks in the United Arab Emirates (excluding those such as Emirates Islamic Bank that are subsidiaries of others), but mergers are more difficult that might first appear since several of these banks are based in the smaller Emirates, and the ruling authorities in those Emirates are keen to keep their own ‘flagships’. Furthermore, many banks have significant private sector shareholders who are unwilling see their stakes diluted into bigger institutions. Most obviously, the Emirate of Sharjah has four banks which have steadfastly refused to merge.

 The attachment at the bottom of the page shows how the 20 commercial banks are spread among the seven Emirates that comprise the UAE.

 In April, two Saudi banks announced that they were in merger talks. Saudi British Bank is 40% owned by HSBC and Alawwal Bank (previously known as Saudi Hollandi Bank) is 40% owned by Royal Bank of Scotland (RBS). RBS acquired its stake in Alawwal when it purchasd ABN AMRO bank in 2008 and has been looking to divest its shares as part of a broad effort to reduce its global footprint.

At the end of 2016, Saudi British Bank had equity of $8,341mn and Alawwal had equity of $3,430mn. This made them the fourth and tenth biggest of Saudi Arabia’s 12 locally-incorporated commercial banks.

In Qatar, three banks have announced that they are in merger talks: Masraf Al-Rayan, Barwa Bank and International Bank of Qatar. They are among Qatar’s youngest banks. Barwa Bank was established in 2009, Masraf Al-Rayan in 2006, and International Bank of Qatar in 2000. The first two are Islamic banks and International Bank is a conventional bank.

 There are 10 local commercial banks in Qatar that are licensed by the Central Bank of Qatar (QBC). Six of these are conventional banks and four are Islamic banks. There are also seven foreign commercial banks licensed by the CBQ. The Qatar Financial Centre Regulatory Authority licenses banks to operate as part of the Qatar Financial Centre and these banks may engage in wholesale business and may collect high-value retail deposits.

Qatar National Bank’s end 2016 equity of $19,465 is more than three times the equity of the next biggest banks, Commercial Bank of Qatar ($5,305mn) and Qatar Islamic Bank (5,497mn).

Masraf Al-Rayan was the fifth biggest of the 10 local commercial banks at the end of 2016 (equity of $3,589mn), Barwa was the sixth biggest ($1,996mn) and International Bank was the smallest ($1,233mn).

If the three-way bank merger goes ahead, the assumption would be that International Bank of Qatar’s conventional operations would be converted into Shari’ah-compliant products or run off. There are precedents for this – in 2013, Al Salam Bank, the Bahraini Islamic bank, bought BMI Bank, a conventional Bahraini bank. Al Salam showed ‘assets under conversion’ and ‘liabilities under conversion’ on its balance sheet as it either converted or ran off conventional items.

UAE banks by Emirate