Business | Banking
Time is right for banks to merge
Analysts say banking industry is crowded
- Zawya Dow Jones
- Published: 00:00 September 3, 2010
Doha : An over-capitalised and crowded banking industry in Qatar makes the sector that was bailed out by the government last year ripe for mergers, say analysts.
"I think consolidation makes sense," said Rami Sidani, head of Middle East and North Africa investment at Schroders in Dubai. "There is not enough room for all these banks to be in the Qatari market."
Financially most banks in Qatar, the world's second richest country after Lichtenstein according to the CIA's World Factbook, are in good health after government intervention last year to prop up the sector reeling from the global financial crisis. The country's sovereign wealth fund, the Qatar Investment Authority, now owns between 5 and 10 per cent of most of the Gulf Arab state's lenders.
But analysts say there are too many banks, most flush with cash-in a country that is home to just 1.6 million people.
Over-capitalised
"Many of the banks in the [Qatari] market are over-capitalised, which means they need a lot of lending opportunities in order to achieve a good return on equity which is today not possible," said Sidani. "It's hard to see these banks reduce their capital base and expansion beyond Qatar is going to be tricky," he added.
To be sure, there are some signs that a wave of industry mergers might not be too far away.
Lenders Al Khaliji and International Bank of Qatar (IBQ), have said they are currently in merger talks.
The government, which is currently looking at ways of shaking up the banking sector according to Qatari banking sources, has already taken steps to mop up excess liquidity among local lenders. In June, the country's central bank issued $2.8 billion (Dh10 billion) worth of local currency bonds-aimed at developing Qatar's debt markets.
A spokesman for the Ministry of Finance couldn't be reached for comment.
Many Qatari lenders listed on the Doha stock exchange in the boom years just before the global downturn, raising large amounts through initial public offerings.
Islamic lender Masraf Al Rayan came to market in 2006, raising $1.17 billion, while Al Khaliji Commercial Bank floated in the summer of 2007 via a $338 million offering, according to Zawya.com data.
Sofia Al Boury, a banking analyst at Shuaa Capital in Dubai, said any consolidation would most likely happen in the Islamic banking sector.
"The merging of Qatari Islamic banks is a possibility," she said. "If they want to compete on a regional scale in terms of acquiring, they could get together, merge, and create a stronger Islamic Qatari powerhouse. Some Islamic banks in Qatar are struggling with significant impairments and earnings volatility."
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