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Fitch Ratings-London-May 31: Fitch Ratings says a surge in banking mergers and acquisitions (M&As) in the GCC is unlikely despite a spate of such announcements since early 2017. This is because a key objective behind bank M&As in the region is to create domestic market leaders, as opposed to the traditional objective to realise cost savings.
Traditional long-term objectives of bank M&A are not very appealing to bank shareholders and, although cost savings can be high, they are not sufficient to persuade shareholders who enjoy already high returns. Real attraction in GCC bank M&As lies more with subjective aspects such as franchise and business model, as leading banks in their markets tend to get the largest and lower-risk deals due to their special relationship with their government, which brings financing opportunities and large deposit collection.
The latest announcement to create a domestic leader is in Oman, where two of the nine banks (Oman Arab Bank and Alizz Islamic Bank) could be merging to create the fourth-largest bank in the country. This follows the merger between UAE's National Bank of Abu Dhabi and First Gulf Bank in March 2017 to create First Abu Dhabi Bank (the largest bank in the UAE). On 16 May 2018, Saudi Arabia' Saudi British and Alawwal announced a non-binding agreement to merge, potentially creating the country's third-largest bank (see "Fitch Places Alawwal on Rating Watch Positive; Affirms SABB on Merger Announcement", published 25 May 2018). At the same time, Qatar's Masraf Al Rayan, International Bank of Qatar and Barwa Bank are still negotiating a three-way merger that would create the largest Islamic bank in Qatar. Kuwait's Kuwait Finance House (KFH) is still trying to get hold of Bahrain's Ahli United Bank group and, indirectly, of its strong Islamic franchise in Kuwait; KFH would then become the sixth-largest bank in the GCC and the largest bank in Kuwait.
On the other hand, acquisitions outside the immediate region remain an attractive option for many GCC banks and we expect more activity on that front. These give GCC banks opportunities to diversify, particularly considering their narrow and concentrated operating environments and limited domestic growth opportunities with the current slowdown.
There have been many such acquisitions by GCC banks, particularly in Turkey, which seems a natural market offering a large bankable population and healthy credit growth, a burgeoning Islamic banking sector, and close proximity to MENA. On 22 May 2018 Emirates NBD (ENBD) entered into a definitive agreement with Sberbank to buy its entire 99.85% stake in Turkey's Denizbank A.S.. This transaction is still subject to regulatory approval in Turkey, Russia and the UAE and is expected to close in 2H18. Other examples are Qatar's Qatar National Bank (QNB) with Finansbank, Qatar's Commercial Bank with Alternatif Bank, Saudi's National Commercial Bank with Turike Finans, Kuwait's KFH with Kuveyt Turk and Burgan Bank with Burgan Bank A.S..
Egypt has had the same appeal with a number of high-profile acquisitions, from the likes of ENBD, QNB and Al Ahli Bank of Kuwait. Other GCC banks, particularly UAE banks, have established a presence in Egypt. Fitch rates 11 GCC banks that have a presence in Egypt of a total of 58 rated GCC banks. Southeast Asia is another growth area. We expect these acquisitions to continue if the price is right.
Contact:
Redmond Ramsdale
Head of GCC Bank Ratings
+ 44 20 3530 1836
Fitch Ratings Ltd
30 North Colonnade
London E14 5GN
Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com.
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