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|19 February, 2019

Merger on the Mind: Sharjah's bailout of Invest Bank could 'compel' further restructuring

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World Currencies. United Arab Emirates Dirham.

World Currencies. United Arab Emirates Dirham.

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The bailout of the Invest Bank by the government of Sharjah two months ago could be followed by a merger between Shrajah’s three biggest banks, Bank of Sharjah (BOS), Invest Bank and United Arab Bank (UAB), a senior UAE-based financial researcher told Zawya.

“A 3-way merger of the Sharjah-based banks, BOS-INVEST-UAB is compelling, but not before a full due diligence of UAB and BOS’s books,” Japp Meijer, the managing director of equity research at Arqaam Capital, who did a report last month on Invest Bank developments, told Zawya in an email interview on Monday.

Last September, Reuters reported that the Sharjah government could be considering a merger between three of its leading banks, Bank of Sharjah (BOS), Invest Bank and United Arab Bank (UAB).

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The Sharjah-based lender that is listed on the Abu Dhabi Securities Market, was hit hard by high levels of bad loans that were mainly due to its high exposure to the construction market. The sector has been impacted by the economic slowdown that hit the Gulf Cooperation Council region six years ago.

“Invest Bank had an unusually high exposure to the construction sector. For most UAE banks this (the exposure to the construction sector) is limited to 2-5% of total loans, so (it) is unlikely to have a material effect on the UAE banks. Having said that, we expect bad debt charges to further increase in 2019 and 2020, as recoveries slow, economy remains soft,” Meijer added.

Last December, the UAE’s central bank had announced plans to support Invest Bank with any required liquidity. The Sharjah government later announced it will invest up to 1.9 billion dirhams ($517.36 million) in the bank and said it will buy 1.59 billion shares for 1.115 billion dirhams, or 50.07 percent of the total issued share capital of Invest Bank.   

Otheranalysts told Reuters last month that they expected the Invest Bank news accompanied with the overall economic slowdown to lead to more consolidations in the banking sector.

“There will be pressure on the bigger banks to absorb smaller lenders,” said Sabah al-Binali, the CEO of Abu Dhabi-based investment firm Universal Strategy told Reuters. “People were expecting mergers from an economic point of view, but what you are seeing now is perhaps a greater regulatory push to strengthen balance sheets,” he added.

Last January Abu Dhabi Commercial Bank (ADCB), Union National Bank (UNB) and Al Hilal Bank agreed to a merger that would create the third-largest bank in the UAE. In 2017, the UAE’s two biggest banks First Gulf Bank and National Bank of Abu Dhabi merged, thus creating the First Abu Dhabi Bank (FAB).

Further Reading:

Sharjah eyes 15% FDI growth this year- top official

Saudi Arabia sees first bank merger in two decades

19 listed UAE banks post $2.9bln in Q1 profit

UAE banks see declining returns as costs rise

(Reporting by Yasmine Saleh; Editing by Mily Chakrabarty)

(yasmine.saleh@refinitiv.com)

Our Standards: The Thomson Reuters Trust Principles

Disclaimer: This article is provided for informational purposes only. The content does not provide tax, legal or investment advice or opinion regarding the suitability, value or profitability of any particular security, portfolio or investment strategy. Read our full disclaimer policy here.

© ZAWYA 2019

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