M&A among strategies in GCC banking sector to enlarge benefits

Mubasher: Mergers and acquisitions (M&A) are one of the widely adopted corporate strategies that endorse the growth of an organization; however, not all mergers yield positive outcomes, according to Raghu, executive vice president (EVP) and head of research at Markaz and managing director of Marmore MENA Intelligence, a research subsidiary of Markaz.

In some cases, M&A transactions destroy value for the shareholder, especially in the context of the banking sector where high-profile mergers have been few, Raghu said.

“It is easy for shareholders to get carried away by all the hype around recent mergers announcements., Therefore, it becomes imperative to examine the outcome of previous mergers in an objective way,” he noted, according to a recent press release.

Main banking mergers transactions across the Gulf region were showcased in a seminar held by Kuwait Financial Centre (Markaz), in partnership with Kuwait Banking Association (KBA).

The growth and decline in banking assets across the Gulf region had a strong connection with gross domestic product of the countries as well as oil prices.

“After the fall in oil prices during 2014, GCC governments have had to dip into government deposits to offset the impact of loss on oil revenues, putting pressure on the regional banks. In addition, the increase in compliance cost, introduction of VAT and keeping abreast with the technological developments have affected them from a cost perspective,” Markaz said in its press release.

It is noteworthy that earnings per share (EPS) growth reflects a decisive picture of whether banks have been consistently profitable for its shareholders.

“Based on these metrics, the Marmore report examines the synergies generated through the merger and whether they were substantial enough to offset the costs incurred, ultimately justifying whether the merger was valued accretive to shareholders,” Markaz said.