Quest for Size Has Gulf Banks Rushing to Seal Takeover Deals

(Bloomberg) -- After a long lull, deals between Gulf banks are kicking up a gear.

Lenders across the region are undergoing their biggest shake up since 2007, with almost a dozen of them involved in takeovers or mergers over the past two years. The companies are bulking up to cope with dwindling government revenues following a drop in oil prices that squeezed deposits. They're also combining operations in a market seen as overbanked for the population size.

"We will see more bank consolidation in the Gulf Cooperation Council, with most activity likely in the United Arab Emirates," said Sergey Dergachev, who helps manage about $14 billion at Union Investment Privatfonds GmbH in Frankfurt. "Compared to Saudi Arabia, the population in the U.A.E. is excessively banked with a few large banks and lots of smaller ones.”

On Monday, two of Oman's biggest banks said they'll explore a combination that could create an entity with $20 billion in assets. The latest deal spree is being spurred by the tie up in 2016 of National Bank of Abu Dhabi PJSC and First Gulf Bank PJSC to form First Abu Dhabi Bank PJSC, the first major merger since National Bank of Dubai and Emirates Bank International nine years previously combined to create Emirates NBD PJSC.

There are at least 73 listed banks in the GCC, according to data compiled by Bloomberg. These lenders catered to a population of around 51 million at the end of 2016, according to data compiled by Gulf Research Center. U.A.E. has 46 commercial banks for 9.5 million people, while Saudi Arabia has 12 local lenders and 14 foreign-bank branches for 33.6 million people, according to central bank data and information from Worldometers.

Higher compliance costs with the implementation of new accounting standards, rapid technological innovations, the impact of the introduction of value added taxes and the need for stronger corporate governance frameworks are also adding to costs for banks, adding pressure on small- and medium-sized companies to consolidate.

“You can be a comparatively small bank if you have unique competitive edge,” Dergachev said. “But the irony is that most U.A.E banks are quite similar in their business profile.”

To contact the reporter on this story: Archana Narayanan in Dubai at anarayanan16@bloomberg.net

To contact the editors responsible for this story: Stefania Bianchi at sbianchi10@bloomberg.net, Vernon Wessels, Ross Larsen

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