Thirteen GCC banks in discussions for six mergers

  • 14th, November, 2018
Thirteen GCC banks in discussions for six mergers

 Thirteen GCC banks in M&A discussions for six separate transactions

Banks in all six GCC states are involved in merger talks, with many of those banks hoping to conclude agreements by the end of this year. This is the largest number of simultaneous merger discussions between GCC banks since the mid-1980s and possibly in the history of GCC banking. 

In most cases, the merger talks began some time ago when Gulf economies and banks were under pressure from low oil prices and low interest rates. Within the last few months, oil prices have risen and interest rates have begun moving upward, easing liquidity in the region and bringing expectations of stronger economic growth and higher profits for banks in the year ahead.

If all six mergers go ahead, the number of active commercial banks in the GCC will fall from 74 to 68. Some countries such as Qatar and Oman will continue to look overbanked. Bahrain will remain over-banked in terms of the number of licensed institutions, although the number reflects Bahrain’s historical role as a banking hub in the region (and many of the licensed entities are investment vehicles rather than commercial banks). 

Abu Dhabi Commercial Bank, Union National Bank and Al-Hilal

The latest banks to announce merge plans are Abu Dhabi Commercial Bank (ADCB), Union National Bank (UNB) and Al-Hilal. The first two are conventional banks while Al-Hilal is an Islamic Bank.

The merger has been expected and it follows the completion of the merger between National Bank of Abu Dhabi (NBAD) and First Gulf Bank (FGB) earlier this year, and the merger of two-state controlled investment funds, International Petroleum Investment Corporation and Mubadala Development. A third investment fund, the Abu Dhabi Investment Council, was merged into Mubadala earlier this year. 

The bank mergers will result in there being three Abu Dhabi-based commercial banks, compared to six before the NBAD/FGB merger. Abu Dhabi Islamic Bank will remain independent. 

ADCB was created in the mid-1980s from the ashes of three other banks that had expanded too quickly. Union National Bank was created in the early 1990s from the wreckage of the local operations of Bank of Credit and Commerce International (BCCI) which was shut by global regulators in 1991. Al-Hilal was created in 2007. 

Information on the ownership structure of banks in Abu Dhabi (and other emirates) is published on the website of the Central Bank of the UAE. The relevant page is here although readers should be on their guard against out-of-date information.

Kuwait Finance House and Ahli United Bank

Kuwait Finance House (KFH) is the second biggest bank in Kuwait and was the eleventh  biggest in the GCC when ranked by equity at the end of 2017. Ahli United is the biggest bank in Bahrain, and was the 20thbiggest in the GCC. KFH had equity of $7.0 bn at the end of 2017 and Ahli had equity of $4.9bn. Both are well-established banks. 

About one third of Ahli United’s balance sheet comprises Ahli United Bank Kuwait, which is a Shari’ah-compliant bank in which the Bahrain parent holds a majority. Al Ahli also has operations in Egypt, the United Kingdom and, of course, its home base of Bahrain. KFH has significant operations in Turkey and in Malaysia. It is easy to see the strategic rationale of a merger, though it will be interesting to see who ends up controlling the merged bank day-to-day.

Kuwait Finance House has said that its board will decide on whether to proceed with the merger by the end of the year.

Barwa Bank and International Bank of Qatar

International Bank of Qatar is a conventional bank that was founded in 2000. Barwa is an Islamic bank that was founded in 2009. Last year there was talk of a three-way merger, but earlier this year Masraf al-Rayan, an Islamic bank that is much bigger than the other two, withdrew. 

After the merger between IBQ and Barwa the number of domestic Qatari banks will fall from ten to nine. That still leaves Qatar looking over-banked – Saudi Arabia, which is a much bigger economy, will have eleven domestic banks after the merger of Saudi British and Bank and Al-Awwal.

National Bank of Oman and Bank Sohar, and Oman Arab Bank and alizz 

National Bank of Oman (NBO) and Bank Sohar announced in August that they would work towards a merger. Bank Sohar had previously been in merger talks with Bank Dhofar but these were called off in 2016. NBO and Bank Sohar are the third and fourth biggest of Oman’s nine commercial banks.

Oman Arab Bank is 49% owned by Amman-based Arab Bank. Alizz is one of the two Islamic banks that were created after the introduction of new Islamic finance regulations in Oman. Bank Nizwa was created in 2012 and turned its first net profit in 2016 while alizz was created in 2013 and has yet to declare a full year profit. 

Oman has nine domestic commercial banks and this was fall to seven if both mergers are implemented.

Saudi British Bank and Al-Awwal

Saudi British Bank and Al-Awwal Bank (formerly Saudi Hollandi) announced details of their mergers plans in October. We published this summary of the terms of the merger which can be seen lower down this page or here.

Please see the attachment below for some statistics on the banks mentioned.

GCC M&A banks stats