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Mergers and Acquisition between the Gulf Banks: Any Hope?
There has been little mergers and acquisition deals between the Gulf banks in recent years and there are several reasons for this. The size of banks within the Gulf region has remained small and unfortunately they have been unable to compete on the same level as more international banks around the world. There have been calls to create a global player within the region, however, this has been hindered by the fact that banks in the region are faced with hurdles of legislative requirements for any merger to take place with another bank. There are usually differences between shareholder and board of director’s interests over the issue of merging and acquiring another bank and this has led to limitations in corporate activities.
Acquisition and mergers between banks in the GCC region is estimated to be around $15 billion, which really is a small amount. However, much of this estimate has come from the merger between the National bank of Dubai and Emirates bank international in 2007. Since then, no other bank in the region has bought a competitor or merged with another.
The Bahrain Islamic Bank and its smaller rival, the AL Salam Bank has proposed to merge to create a $4.5 billion bank. If the merger goes ahead, it will become the largest Islamic lender in the Gulf Arab Kingdom and could pave the way for more consolidation, mergers and acquisitions within the region. The two Bahraini lenders have stated that they received approval from the central bank for their planned merger. If successful, the merger will be the first for the GCC based Islamic institutions. Many challenges remain however not least bank valuation, board and senior management appointments, and strategic direction.
When taking an overview of the banking markets in the region, including the larger systems found in the UAE, it is easy to see that there are many financial institutions chasing too few customers with in the region. This can especially be seen the Qatar markets, where many institutions are really chasing and search for new customers. In the UAE there are over 50 banks including both local banks and foreign banks. This together with the current banking conditions and the weak asset growth, suggests that the market is ripe for a corporate activity.
Emirates NBD took over the troubled Dubai Bank in October 2011. It was a take over that was initiated by the authorities and doesn’t signal any change in the attitude towards mergers or take overs. The Dubai Bank suffered tremendously from the local financial downturn and it recorded a loss in 2009. After this, it was taken over by the Dubai Government before being transferred to Emirates NBD
Foreign ownership rules have made it difficult for foreign banks to acquire banks in the region. In fact, a number of foreign banks are beginning to scale back their operations within the region. This can be attributed to several reasons. The first of which is the fact that global crisis has had a knock on effect on the banks and secondly there has been a significant fall in the volume of financial activity in the region. The pace of IPOs in the GCC region has halved to $400 million this year from $800 million in the same period in 2010 and $10 billion in 2008. The volume of deals in the Gulf state has also fallen 60 percent to $25 billion this year from $40 billion in the year earlier period.
There has been little mergers and acquisition deals between the Gulf banks in recent years and there are several reasons for this. The size of banks within the Gulf region has remained small and unfortunately they have been unable to compete on the same level as more international banks around the world. There have been calls to create a global player within the region, however, this has been hindered by the fact that banks in the region are faced with hurdles of legislative requirements for any merger to take place with another bank. There are usually differences between shareholder and board of director’s interests over the issue of merging and acquiring another bank and this has led to limitations in corporate activities.
Acquisition and mergers between banks in the GCC region is estimated to be around $15 billion, which really is a small amount. However, much of this estimate has come from the merger between the National bank of Dubai and Emirates bank international in 2007. Since then, no other bank in the region has bought a competitor or merged with another.
The Bahrain Islamic Bank and its smaller rival, the AL Salam Bank has proposed to merge to create a $4.5 billion bank. If the merger goes ahead, it will become the largest Islamic lender in the Gulf Arab Kingdom and could pave the way for more consolidation, mergers and acquisitions within the region. The two Bahraini lenders have stated that they received approval from the central bank for their planned merger. If successful, the merger will be the first for the GCC based Islamic institutions. Many challenges remain however not least bank valuation, board and senior management appointments, and strategic direction.
When taking an overview of the banking markets in the region, including the larger systems found in the UAE, it is easy to see that there are many financial institutions chasing too few customers with in the region. This can especially be seen the Qatar markets, where many institutions are really chasing and search for new customers. In the UAE there are over 50 banks including both local banks and foreign banks. This together with the current banking conditions and the weak asset growth, suggests that the market is ripe for a corporate activity.
Emirates NBD took over the troubled Dubai Bank in October 2011. It was a take over that was initiated by the authorities and doesn’t signal any change in the attitude towards mergers or take overs. The Dubai Bank suffered tremendously from the local financial downturn and it recorded a loss in 2009. After this, it was taken over by the Dubai Government before being transferred to Emirates NBD
Foreign ownership rules have made it difficult for foreign banks to acquire banks in the region. In fact, a number of foreign banks are beginning to scale back their operations within the region. This can be attributed to several reasons. The first of which is the fact that global crisis has had a knock on effect on the banks and secondly there has been a significant fall in the volume of financial activity in the region. The pace of IPOs in the GCC region has halved to $400 million this year from $800 million in the same period in 2010 and $10 billion in 2008. The volume of deals in the Gulf state has also fallen 60 percent to $25 billion this year from $40 billion in the year earlier period.
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