First Abu Dhabi Bank (FAB) has been granted a licence to operate a commercial banking business in Saudi Arabia.

FAB currently has a licence to operate up to three branches in the kingdom, but it said in an announcement on Tuesday the new licence granted by the Saudi Arabian Monetary Authority would allow it to extend its corporate and business franchises across the country.

Last month, the bank was also recently gained approval from Saudi Arabia's Capital Markets Authority to set up an investment banking subsidiary, FAB Investment KSA, in the kingdom.

In a statement announcing the news, the bank's chairman, Sheikh Tahnoon bin Zayed Al Nahyan, said the granting of the new commercial licence is "a key element of our evolving international strategy".

"In light of the recent securities licence approval secured earlier this year, FAB is moving forward with the next phase of our growth plan for the KSA market," he said.

FAB was created following the merger between National Bank of Abu Dhabi and First Gulf Bank, which completed in April 2017. It is now the biggest bank in the UAE, with total assets of 669 billion UAE dirhams ($182.2 billion) as of December 31, 2017.

In January, the company revealed a 3 percent drop in net profit for 2017 to 10.92 billion dirhams, which it said was the result of higher costs incurred as a result of the merger.

In a report on the UAE banking sector published on Sunday, BMI Research stated that it expected to see more UAE banks expanding outside of their core markets, as opposed to further mergers taking place.

"We believe that a surge in M&A activity is unlikely beyond deals between small local banks," the note by BMI Research, a Fitch Group company, stated.

"The majority of Emirati banks are relatively profitable, and tend to be owned by local, private shareholders, complicating consolidation in the sector. Instead, we believe that UAE-based banks will seek to diversify their activities geographically, either by acquiring stakes in foreign banks or expanding their operations under their own banner," it added, citing Emirates NBD's recent announcement that it is in talks to buy a stake in Turkey's Denizbank as an example.

(Writing by Michael Fahy; Editing by Shane McGinley)

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