If you can’t beat them, join them. Or, perhaps more accurately, if you own shares in two or more banks that operate in countries whose economies have been severely impacted by lower oil revenues, join them.
Such was the case in the United Arab Emirates in 2019, with the merger of Abu Dhabi Commercial Bank with Union National Bank and Al Hilal Bank, creating the country’s third largest lender. This has followed by the coming together of Dubai Islamic Bank and Noor Bank, creating an Islamic banking giant with about $75bn-worth of assets.
The two deals form part of a wave of consolidation across the six states of the Gulf Co-operation Council, as governments and lenders look for efficiencies in the midst of tighter economic conditions. In addition to the two UAE mega-deals, Saudi banks SABB and Alawwal completed a merger in June 2019, the first deal of its kind in the country in more than 20 years.
Such merger activity has already spilt over into 2020. January saw the National Bank of Bahrain increase its shareholding in Bahrain Islamic Bank, in a bid to tap into growing demand for sharia-compliant financing in the country. That same month in Oman, Alizz Islamic Bank shareholders approved a merger deal with Oman Arab Bank, which will create the country’s third largest Islamic financial institution. January also saw progress in Kuwait Finance House’s long-running merger process with Ahli United Bank of Bahrain, a rare cross-border deal within the region.
It is not clear, however, whether the consolidation trend is sustainable; many of the bigger deals that have been done have involved common shareholders, smoothing what are nonetheless complex transactions. In December, one of the most anticipated tie-ups in the region – between Saudi market leader National Commercial Bank and domestic rival Riyad Bank – fell through, with parties unable to agree terms, in spite of common shareholdings. The merger imperative may remain, but expect future deals to be longer, more complicated affairs.
