Abu Dhabi’s three-way banking merger likely in 2019 first quarter
The stocks of listed entities could initially face some volatility but then settle down
Abu Dhabi: Creating bigger banks would help with the industry’s medium-term progress, especially as fintech-related services are making a presence regionally, analysts said as news reports emerged that the merger of Abu Dhabi Commercial Bank (ADCB), Union National Bank and Al Hilal Bank is expected to be completed in the first quarter next year.
The Arabic daily ‘Al Khaleej’ quoting sources reported that a committee consisting of financial and legal consultants completed the merger study and a decision is expected in February. The merger would result in GCC’s fifth largest bank with a capital of $13.8 billion (Dh51 billion) and assets of about $120 billion (Dh440.7 billion). The new bank will offer commercial banking and Islamic banking services.
The development comes after ADCB and Union National Bank both confirmed in separate statements on Abu Dhabi bourse in September that they are in early talks about a potential merger.
The two banks said they have commenced “exploratory talks” regarding a possible merger, but said the talks are at “a very preliminary stage” and they would update the market if and when there are “any material developments” on the issue.
A merger between the banks would follow a similar one between the National Bank of Abu Dhabi and First Gulf Bank, which merged in April 2017 to create First Abu Dhabi Bank. The merger created one the Middle East’s largest banks by assets, with Dh691.6 billion worth of assets as of June 30, 2018.
Commenting on what could be in store for the concerned stocks, Tariq Qaqish, Managing Director, Asset Management at Menacorp Finance, said there would be a volatility in the beginning but once the management is in place, investors’ confidence will go up again.
“We’ve seen with NBAD [National Bank of Abu Dhabi] and FAB after the merger, the stock was punished in the beginning and then the synergy started kicking in, investors started to realise that there is a stronger bank going forward.
“Banks in general are consolidating to move to the new era of change in technology.”
Ehsan Khoman, Head of Mena Research and Strategy at MUFG Bank Ltd said a three-way merger could release long-term value through economies of scale, synergies and overall restructuring for ADIC (Abu Dhabi Investment Council), the majority shareholder in the three banks.
“Such a proposition makes sound business rationale and intuitive sense for ADIC as it would merely own a more profitable combined banking group after cost restructuring is implemented. This in turn will lead to surplus capital release, reduce the cost of funding and enhance asset quality.”