New bank merger to ease fund pressure
dubai — The prospects of a new cycle of bank mergers — the fourth round of consolidation in the UAE’s banking history — would be credit positive for the banking sector and serve to further consolidate the over-crowded financial system, analysts said.
The commencement of threeway exploratory talks involving Abu Dhabi Commercial Bank (ADCB), Union National Bank (UNB) and Al Hilal Bank, a year after the merger of the National Bank of Abu Dhabi and First Gulf Bank to create the Dh671 billion First Abu Dhabi Bank, is aimed at creating another financial powerhouse with increased pricing power, ensuing reduced pressure on funding costs. Such an entity will have an increased ability to meet sizeable investment requirements, analysts at Moody’s said.
Once the merger takes place, the combined entity will have assets of around Dh415 billion, closer to the assets of banking giant FAB that came into being last year.
ADCB, UNB and AHB have some common shareholding, with Abu Dhabi Investment Council holding stakes of 63 per cent in ADCB, 50 per cent in UNB and 100 per cent in AHB.
Emirates NBD, which came into being after the merger of National Bank of Dubai and Emirates Bank International in 2007, has assets of Dh477 billion while the merger of Dubai Bank and Emirates Islamic Bank led to the formation of Emirates Islamic Bank in 2012.
Based on assets, First Abu Dhabi Bank had a 26 per cent market share in the UAE and Emirates NBD had 18 per cent as of June 2018.
The ratings agency said bank competition in the UAE, where 50 banks serve a population of only nine million, has increased over recent years as lending opportunities decreased following a decline in economic and credit growth amid lower oil prices.
“The stronger competition also reflects lenders’ focus on highquality borrowers given elevated delinquencies among small and medium companies and mid-sized corporates amid a soft environment, along with the introduction of a credit bureau,” it said.
Analysts believe consolidation of the banking system will also diminish the competitive pressure for funding. The competition for concentrated deposit sources, combined with the increase in US interest rates, is contributing to an increase in UAE banks’ funding costs. “Because the UAE’s local currency, the dirham, is pegged to the dollar, rising US interest rates have historically translated into higher dirham rates in the UAE,” they noted.