Merger heralds new banking era

The merger of the National Bank of Dubai and Emirates Bank International is considered a significant development in the banking sector, which paves the way for a new stage of banking in the UAE.

With 46 banks operating in the country, the merger marks the beginning of a new era, complete with its challenges including the nature of banking services and global competition.

These banks have played an important development role, which can be seen through their banking activities and the rapid growth rates that keep up with the country's annual growth rates of 10 per cent in average during the past three decades.

Financial services have also developed to be on par with their counterparts in developed industrial countries.

These positive developments in the banking sector were in parallel with the national economy's rapid growth, which resulted in advanced financial and banking needs in the past years.

However, the current global economic changes, especially after the establishment of the World Trade Organisation (WTO) in 1995, imposed new and serious challenges.

Therefore, major financial institutions have been established worldwide, which required the UAE banking sector to create institutions with a competitive edge.

Major mergers have taken place in various sectors in Europe, including the banking sector, reducing the number of banks in each European country to a minimum.

This tendency stems from economic and operational reasons, which are not related to competitive capabilities only, but also to reducing operation costs, and expansion in the nature and quality of financial services, and the ability to finance giant projects demanded by modern economies.

Leading international financial institutions have welcomed the step, such as Standard and Poor's - the world's foremost provider of independent credit ratings - which raised the credit ratings of the two banks to the AA-1 category, because of its awareness of the expected positive impact of the merger, and the major role the new bank will play.

Earlier experiences indicate that operation costs may be cut by between 25 and 30 per cent, which means an increase in the efficiency and profit of the newly merged financial establishment.

The new banking entity will receive many regional and international financing opportunities in the future.

The merger will create a strong banking institution, considered one of the largest in the region, with assets of Dh165 billion ($45 billion). This will enable the new institution to play a key role in local and regional stock markets.

The merger meets the demands of the globalisation age, economic openness and fierce competition in global markets, which is expected to heat up in the next decades. It will pave the way for many new bank mergers in the region, especially since many institutions in the UAE are ready for this step.

Led by the WTO, the world is heading towards the liberalisation of the service sector, including banking services. Commodities such as clothes had earlier been liberalised, which led to tremendous changes in the industry of these projects, and the shifting of power centres to new countries.

Although the GCC countries' attempts to liberalise their service sectors and agricultural products have not advanced in five years, effort is still being exerted to make the new round of talks about the subject a success and to move towards commercial liberalisation regardless of the conflicting views.

Once this happens, only big establishments would be able to offer good commodities and services at acceptable prices, since quality and cost are key issues in global open markets.

The writer is a UAE economic expert.