Smaller banks in the United Arab Emirates are facing regulatory pressure to merge after the fallout from a property downturn forced the state to lead a bailout of Invest Bank INVB.AD last month, Trend reports referring to Reuters.
UAE has 50 commercial banks including 22 local lenders, a number seen as too high in a country of about 9.5 million people. Saudi Arabia, which has a population of 32 million, has 12 banks and is set to lose two of those if announced mergers are successfully concluded.
After two of the UAE’s biggest lenders, First Gulf Bank and National Bank of Abu Dhabi, merged in 2017 to become First Abu Dhabi Bank FAB.AD, three more lenders are in talks to combine, led by Abu Dhabi Commercial Bank ADCB.AD.
Analysts expect mergers in the sector to accelerate given a slowing economy, slide in house prices, robust accounting standards and tougher competition.
“There will be pressure on the bigger banks to absorb smaller lenders,” said Sabah al-Binali, CEO of Abu Dhabi-based investment firm Universal Strategy.
“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.”
Smaller banks in the UAE, which are mostly family owned, have lost market share to the top four lenders, which now control around 65 percent of banking sector loans, according to Fitch. Despite that, their owners have resisted mergers, partly due to differences over who would control the combined entity.
But one banker, who has been advising banks on M&A, said there are more merger conversations happening in a sign that owners are becoming more open to consolidation.
“We are party to a number of such conversations and instigating a number of those,” the banker said.