UAE bank bailout signals restructuring, mergers

dubai — Smaller banks in the UAE are facing regulatory pressure to merge after the fallout from a property slowdown forced the state to lead a bailout of Invest Bank last month.

The UAE has 50 commercial banks including 22 local lenders, a number seen as too high in a country of about 9.5 million people. Saudi Arabia, which has a population of 32 million, has 12 banks and is set to lose two of those if announced mergers are successfully concluded.

After two of the UAE’s biggest lenders, First Gulf Bank and National Bank of Abu Dhabi, merged in 2017 to become First Abu Dhabi Bank, three more lenders are in talks to combine, led by Abu Dhabi Commercial Bank. “There will be pressure on the bigger banks to absorb smaller lenders,” said Sabah Al Binali, CEO of Abu Dhabi-based investment firm Universal Strategy.

“People were expecting mergers from an economic point of view, but what you are seeing now is perhaps a greater regulatory push to strengthen balance sheets.”

Smaller banks in the UAE have lost market share to the top four lenders, which now control around 65 per cent of banking sector loans, according to Fitch. Despite that, their owners have resisted mergers, partly due to differences over who would control the combined entity.

But one banker, who has been advising banks on M&A, said there are more merger conversations happening in a sign that owners are becoming more open to consolidation. “We are party to a number of such conversations and instigating a number of those,” the banker said.

The Sharjah government proposed to buy Invest Bank shares for just 0.70 fils ($0.19) each, against the last traded price of Dh2.40, after the central bank ordered it to take losses that wiped out its capital base.

“The central bank has become much more involved with all of the banks in ensuring (they) have a sustainable business model and the risks they are taking can withstand downside shocks,” said the banker.