Abu Dhabi: Reports on Sunday denying merger plans in Abu Dhabi’s banking industry did not quench market speculations about further consolidation, with investors still betting on bank mergers in the medium to long terms.
Abu Dhabi Commercial Bank (ADCB), Union National Bank (UNB), and Abu Dhabi Islamic Bank (ADIB) on Sunday issued statements denying that the banks were mulling a merger.
The statements came after a Bloomberg report on Tuesday evening said Abu Dhabi’s government was considering a plan to merge ADCB and UNB, and a plan to merge ADIB with Al Hilal Bank.
Speculations about these banks merging have been floating in the market since June when National Bank of Abu Dhabi (NBAD) and First Gulf Bank (FGB), two of Abu Dhabi’s biggest banks, announced plans to merge. Their merger will create the largest bank in the Middle East and North Africa, with Dh642 billion in total assets, and is expected to be completed in the first quarter of 2017.
“Many participants in the market said that you won’t just get NBAD and FGB merging; there will be others to follow but the timeframe is unpredictable at this stage. It might take until 2018 or until 2019, so nobody really knows but it does appear that Abu Dhabi is suggesting to banks that mergers will be good for everybody be it for the shareholders or the economy as a whole,” said Sanyalaksna Manibhandu, director of research at the National Bank of Abu Dhabi Securities.
He added, “I think the announcements [today] are fair because quite probably management have not been told, and all they’ve seen is market talk, so until they’re told definitively, they can say they don’t know anything about it [the mergers]. That’s fair.”
Indeed, the three announcements posted by each bank did not deny that mergers are on the horizon, but denied the banks have discussed such talks or have been told by the government about such plans.
“We do not have any information from any official source about this topic [the merger], and it has not been discussed with the bank’s management,” UNB said in its statement.
Challenges in the UAE’s operating environment on the back of lower oil prices have spurred discussions about the need for consolidation in the UAE’s banking sector, especially as many banks report lower profit growth.
“The UAE has about 51 banks, whereas in Saudi Arabia, for example, they’re less than 20 and I think the same is true for Qatar. So one reason why mergers are being discussed is that there are too many banks here. The second is, in the present environment where liquidity is tighter than in prior years, you have a lot of banks chasing customer deposits so it’s an idea to merge them,” NBAD’s Manibhandu said.
Last week at a banking forum, when asked whether he expected to see more mergers in 2017, Mubarak Al Mansouri, the UAE’s Central Bank governor, said he supported any moves that will strengthen the banking sector but declined to disclose further details, saying mergers are a business decision.