Two decades on, economic setting has changed

Two decades on, the economic setting for bank mergers has changed

Last updated:
2 MIN READ

Dubai: The economic setting for bank mergers in the 1980s and the one on Tuesday could not have been more different.

Between 1982-86, the country was in recession. The price of oil had declined sharply to less than $10 a barrel and government revenues had fallen.

And separately, during these years, light bank supervision had led to a crisis in the banking sector.

But today, with surplus revenues from record oil prices and a globally competitive economic environment, it is a different story.

Banking regulation is gearing to be in step with international standards, with banks working towards adopting Basel II.

Also, the UAE is discussing free trade agreements with several nations.

In the 1980s, the mergers and the government shareholding in the merged set-up was an act of rescue of a failing banking system.

In Dubai, three banks merged. Dubai Bank, Union Bank of the Middle East and Emirates National Bank were merged into Union Bank of Middle East, which was re-branded and named Emirates Bank International.

In the 1990s, the group also took over Middle East Bank. The three banks were failing and the Government of Dubai provided the necessary financial resources to bring about the merger.

Similarly, in Abu Dhabi Emirates Commercial Bank and Federal Commercial Bank came together in 1985 and merged with Khaleej Commercial Bank to form what is now known as Abu Dhabi Commercial Bank.

In both cases the Central Bank stepped in and rescued the banks.

When a bank fails and the government guarantees the depositors deposits, it is a very different situation from two very successful banks merge - as in the case of Emirates Bank International and National Bank of Dubai (NBD).

Over the past three years, talks about a merger between NBD and with Emirates Bank International were doing the rounds.

"Nothing was officially communicated" until the two reached an agreement on Tuesday, said P Krishnamurthy, CEO of the Financial Services Division of Al Rostamani Group.

"It's more to do with the WTO free trade requirements that people are talking about and, also, the banking industry has been on a stronger footing with the recent growth that we have seen in this part of the world."

Sign up for the Daily Briefing

Get the latest news and updates straight to your inbox

Up Next