Over the past few days, talks of mergers among banks in the UAE have reemerged, chief among them was the merger between Bank of Sharjah, Invest Bank, and United Arab Bank (UAB).

Such mergers are seen as healthy to the UAE banking sector and its overall performance, analysts told Mubasher.

The government of Sharjah is currently discussing the three-bank merger, which may bring about a banking entity with AED 66.2 billion ($18 billion) in assets, according to Reuters.

All sectors in the UAE could use mergers, which contribute to improving these sectors and to increasing their investments, analysts told Mubasher.

Benefits and indicators

The UAE’s banking sector could use mergers, particularly when considering the size of the sector as opposed to the number of people in the country, commented member of the National Advisory Board of Chartered Institute for Securities & Investments (CISI) Wadah Al-Taha.

In the UAE, there are about 22 local banks, in addition to 39 foreign ones. Combined the total number of these banks branches is 753, spread out across the UAE.

The major upside for mergers is that they create stronger banks or entities that could compete regionally and internationally, Al-Taha told Mubasher.

The total value of shareholders’ equity for the three banks reached AED 8.74 billion in the first half of 2018, while their assets amounted to AED 66.18 billion ($18 billion).

In the event of a merger, the Bank of Sharjah would have the lion's share of the merged entity with 40.2% of assets. In 2017, the three banks logged a combined AED 2.843 billion in revenues.

Other sectors

Other sectors could use some mergers, Al-Taha further indicated, naming the insurance and citing a continued decrease in insurance companies’ capital to as low as AED 150 million and AED 200 million.

Similarly, brokerage companies, which have reached 44 firms in the UAE, could benefit from mergers after a decline in their revenues and the lower market turnover, the analyst said.

As for the real estate sector, the decrease in selling residential units will “most certainly” lead these companies to merge, particularly those operating in real estate development, Al-Taha told Mubasher.

Islamic Banks

Islamic banks are in dire need of mergers, according to Issam Kassabieh, senior financial analyst at MenaCorp, who said that such transactions would allow shareholders to get large cash dividends.

Earlier in September, Abu Dhabi Commercial Bank (ADCB) started discussions with United National Bank (UNB) over a potential merger. The bank also held separate talks with Al Hilal Bank.

Mergers in the UAE’s banking sector aren’t new, with the most prominent merger being between the National Bank of Abu Dhabi (NBAD) and First Gulf Bank (FGB), which brought about First Abu Dhabi Bank (FAB).

In November, Bank of Sharjah and Invest Bank started talks over a possible merger.

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