Although merger among Gulf banks is not a new phenomenon, such moves have accelerated to include some of the larger institutions.
Earlier, this mechanism was limited to small banks, such as the one which resulted in the formation of Abu Dhabi Commercial Bank after four small banks united in the mid-1980s.
Previous experiences proved the effectiveness of national banks’ merging and leading to many positive outcomes.
For example, the one between National Bank of Dubai and Emirates Bank was one of the most successful amalgamations, and the entity became the largest bank in the UAE then with a total capital of Dh7.34 billion.
Moving in the same direction, National Bank of Abu Dhabi and First Gulf Bank combined two years ago to create First Abu Dhabi bank, becoming the largest in the UAE and also one of the largest in the world with a capital of Dh10.89 billion.
Meanwhile, the business and financial sector is expected to see another merger — of three national banks — Abu Dhabi Commercial Bank, Union National Bank and Al Hilal Bank — by which they will form one of the largest institutions in the country.
In Saudi Arabia and Kuwait, there are talks about big amalgamations, but it is yet to be disclosed how and when it would be.
In Bahrain, there is news of a merger between National Bank of Bahrain (NBB) and Bank of Bahrain and Kuwait (BBK).
Bahrain’s Ahli United Bank and Kuwait Finance House have also been in such talks and moving rapidly to that end.
This means the Gulf banking sector will go through a qualitative leap in coming years.
The GCC’s high levels of development entail a need for large banking and institutions capable of carrying out financing operations consistent with the huge projects being taken up.
It goes without saying that mergers, as proven by earlier ones, lead to enhanced effectiveness of banks, reduce costs, and provide new potential for operating outside the country.
This would contribute to diversifying economic activities, boosting the local economy with new financial resources and positively impacting on the GDP and balance of payments.
The GCC banking sector will be able to provide more sophisticated services, which would be difficult for smaller players to offer. This is because of these services’ high launch and operating costs and the lack of feasibility resulting from the institution’s small size and lower customer base, which may result in them losing market share.
Therefore, merged enterprises will have competitive capabilities in domestic and foreign markets. Some of the large banks in the West are also seeking mergers despite the enormous capacity they have.
The talks between Deutsche Bank and Commerzbank in Germany reaffirms the need for mergers in the Gulf banking sector, and thus doing away with smaller and less capable entities.
In the event of these mergers proving effective, it is likely that mergers between Gulf banking entities belonging to more than one GCC country could be the next qualitative leap, enhancing domestic and external competitiveness and bolstering common interests.
The integration of the GCC common market will be reinforced and will enhance the Gulf’s economic and financial standing in a highly competitive global landscape.