The Banker’s merger and acquisition figures for 2017 show the end of the Gulf’s buying spree and a sharp increase in activity from Africa and the Levant. James King reports.

Bank al Etihad

When The Banker first started tracking merger and acquisition (M&A) activity among Middle East and African banks in 2016, the story was dominated by lenders from the Gulf Co-operation Council (GCC). In their hunt for higher returns and greater growth opportunities, these institutions had, over the preceding years, executed a number of headline transactions, from the Commercial Bank of Qatar’s $473m purchase of a 75% stake in Turkey’s Alternatifbank in 2013 to Qatar National Bank’s $2.9bn purchase of Finansbank in the same market in 2015.

But the standout story to emerge from the data in this edition, supplied by Mergermarket and covering 2017, is that this Gulf-led shopping spree appears to be over. Not a single bank from the GCC features as a bidder in the top banking M&A deals in 2017. Instead, lenders from the Levant, including Jordan and Israel, and, in particular, African countries, have emerged as the key movers and shakers. The motivations behind these deals are diverse. In the case of some countries, such as Kenya, they point to a much-needed process of consolidation of smaller banks. In others, they indicate a push by larger players to diversify earnings and assets.

The absence of GCC banks from the data has not dented total volumes, however. In 2017, total banking M&A deals across the Middle East and Africa were worth a total of $2.41bn. This is far lower than the 2016 total of $15.71bn, although that figure was heavily skewed by the merger of the National Bank of Abu Dhabi and First Gulf Bank, which alone accounted for $14.84bn. Instead, deal volumes in 2017 more closely resemble the data for 2014 and 2015, when the figures were $1.77bn and $3.68bn, respectively.

The top three

The acquisition of UK challenger bank Aldermore by South Africa’s FirstRand Limited, a holding company that owns FirstRand Bank, was the largest deal in the survey of 2017, worth $1.416bn. This was followed by Israeli bank Mizrahi Tefahot’s acquisition of its market peer, Union Bank of Israel, for $404m. Rounding out the three largest deals was the acquisition of a 52% stake in Jordan Dubai Islamic Bank by fellow Jordanian lender Bank Al Etihad.

The largest seven remaining M&A deals for 2017 were executed by lenders in Africa. Notably, these transactions all featured bidders from different jurisdictions. To give this some context, only four sub-Saharan African banks featured in the top 10 deals by size (amounting to 20 transactions in total) in the 2015 and 2016 surveys combined.

So, what accounts for this surge in banking M&A activity across Africa in 2017? Many of these transactions are the result of long-term trends that have been shaping banking markets across the continent for years. In some cases they include the sale of formerly distressed then nationalised banks to private investors. In others, they are the result of lenders that have struggled in more difficult economic conditions to remain competitive in overbanked markets.  

MEA Banking M&A

In the case of Nigeria, the sale of Keystone Bank for $82m by the Asset Management Corporation of Nigeria (Amcon) ended a long-running saga of privatising the lender. Created in 2010, Amcon is a state-backed Nigerian ‘bad bank’ that took over three nationalised lenders, including Keystone Bank, in 2011. Accordingly, the 2017 sale of Keystone Bank to a consortium of private investors – Sigma Golf Nigeria and Riverbank Investment Resources – finally rids Amcon of the last of the three nationalised institutions on its books.

Elsewhere, troubled Mozambican lender Moza Banco received a capital injection of $139m from Kuhanha, the fund that manages employee pensions for Banco do Mozambique, the country’s central bank. An economy hit hard by the impact of falling commodity prices, as well as heavy overbanking, accounts for the challenges facing Moza Banco. Under the terms of the transaction, Banco do Mozambique, through its pension fund, secured an 80% stake in the lender.

Expansions down

What is striking about M&A deals involving African banks over the 2017 review period is that none of them, with the exception of FirstRand Limited’s acquisition of Aldemore, involved the expansion of large, regional lenders. This contrasts with the experience of recent years, including 2016, 2015 and 2014, when big-hitters from South Africa, Morocco and Kenya were spreading their wings in new markets. Notable transactions over that period include Morocco’s Attijariwafa pushing into Egypt, and Kenya’s Equity Group entering the Democratic Republic of the Congo.

Lower commodity prices and cooling economies across the region may in part account for this slowdown in activity. Moreover, lenders from some markets are now winding down their regional growth strategies. A handful of Nigerian lenders which aggressively expanded in the years after 2010 have, in recent times, exited some underperforming markets. In 2017, Nigeria’s Diamond Bank sold its stake in Diamond Bank Benin to an insurance group from Côte d’Ivoire, Nouvelle Société Interafricaine d’Assurance.

Elsewhere, the exit of international lenders from Africa and the Middle East has continued apace. In 2017, Barclays reached an agreement with Malawi-listed First Merchant Bank for the sale of its Zimbabwe unit. The move is part of a wider withdrawal from the continent by the UK bank. Indeed, similar transactions involving the lender’s United Arab Emirates retail operations as well as its Egyptian unit were recorded in 2014 and 2016, respectively.

Where next?

Looking ahead, it seems unlikely that the Middle East and Africa M&A picture will change, barring a few exceptions. Many, though not all, of the region’s banking giants have executed landmark transactions in recent years. As a result, most of these players are now looking to optimise their existing footprint. In October 2017, for example, Bloomberg reported that Qatar’s Commercial Bank, the third largest lender in the country by assets, was planning a capital increase in the order of $1bn to its Turkish unit.

The next 12 months will likely see further consolidation of smaller players in key Middle East and African banking markets. In some cases, such as Kenya, these banks are struggling to compete in a tougher economic environment and in the face of regulatory headwinds. Elsewhere, the costs associated with measures to combat financial crime are forcing smaller lenders in some jurisdictions to consider consolidation. In Lebanon, a wave of M&A activity has been anticipated as a result of these conditions and the fact that the country has more than 30 local commercial banks in operation.

Nevertheless there is some scope for a larger transaction in the Middle East. In Qatar, a long-planned three-way merger between Barwa Bank, Masraf Al Rayan and International Bank of Qatar may eventually produce a regional sharia-compliant champion with the help of government backing.

Cumulatively, these trends could present the wider region with a number of benefits. For one, banking systems are likely to become stronger and more efficient. Indeed, markets such as Mozambique, with close to 30 commercial lenders catering to a population of 29 million, most of whom are unbanked, could be improved through consolidation. This need not result in less competition or less choice for the consumer: a reduced number of banks in Lebanon, Kenya or Mozambique, for example, would still leave these markets with a plentiful number of commercial lenders.


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