What to expect from new entity

Dubai: Bank mergers or acquisitions usually raise concerns, since customers may not fully understand their implications. Worries intensify when a foreign bank acquires a local bank, or a strong institution acquires a troubled one.

This is not the case with the merger between National Bank of Dubai (NBD) and Emirates Bank International (EBI).

Fewer number of banks translates into a stronger sector - less fragmented and better regulated.

But what does the merger mean for customers?

"When the merger is meant to rationalise the market and consolidate the industry, competitiveness increases," Doha Abdul Hamid, a Cairo-based banking expert, told Gulf News.

"As long as the two banks are strong, the customer base is going to increase and therefore transaction costs should drop. It is a simple case of economies of scale," she added.

Mohammad Reza, an Iranian national and resident of Dubai, was not aware of the merger yesterday morning as he walked to an Emirates Bank ATM.

When I broke the news to him, he seemed indifferent. "I have accounts in both banks - both personal and corporate. I am not satisfied with either one's customer services or charges. Now I am afraid they will become even worse," he said.

Reza, who runs a real estate investment firm, added that he does not think the merger will result in reduced bank fees.

His theory may have backing in other markets where mergers create monopolist giants.

For example, in the United States, a University of California study has found that in the three years after a merger, competition for loans typically declines. Interest rates, which the bank charges customers for loans, rise significantly and borrowers get smaller loans.

"Bank mergers may reduce competition in an area. When there is less competition, loan rates tend to be higher," the study says.

"These are only a temporary phenomenon. In the long run efficiency gains dominate over the market power effect of mergers, leading to more favourable prices for consumers," the study said.

Michael Paul, another customer of Emirates Bank, welcomed the merger. "I think bigger banks should have more resources and better synergies," he said.

While it may take a few months to finalise the integration of operations, once all is done, "customers will also have a wider variety of products," Hamid said.