GCC banks may see wave of mergers and acquisitions - A.T. Kearney study

A recent A.T. Kearney study examining GCC banks revealed unique opportunities resulting from changing conditions in the global and regional financial markets.

Banks in the Middle East have seen unprecedented growth over recent years and many still reported profits in 2008. From 2002 to 2007 banks in the UAE saw a 39% increase in net profits and a 34% increase in total banking assets.

Moreover, banking assets in relation to GDP today are still comparatively low in most GCC countries, leaving ample room for growth for the banking industry and its players.

At the same time, the banking market in the GCC is largely fragmented. Even though several domestic markets already have a consolidated banking sector, the picture changes on a regional level: no single bank stands out in the region as a whole. Regionally, the top three banks account for just 14% of market share.

While the regional banking market has so far largely shunned major mergers and acquisitions, changing conditions in the global and regional financial industry have created unique opportunities for a long-predicted wave of mergers and acquisitions.

"We see great potential for regional banks to consolidate and grow regionally," said Dr. Alexander von Pock, Senior Manager, Financial Institutions Group, A.T. Kearney Middle East, at the International Islamic Finance Forum in Dubai recently.

"While the region has witnessed very few banking mergers and acquisitions over the past years, there will be more activity in the future. GCC banks are still small compared to the big international banks and eventually will need to grow externally to compete. Banks need to proceed carefully, though, as most mergers fail to meet their objectives due to poor planning or execution,"

he added.

"Consolidation is gathering momentum driven by structural, market and regulatory factors," added Dr. Dirk Buchta, Managing Director, A.T. Kearney Middle East. "Moreover, the declining market capitalization of regional banks in the wake of the financial crisis has created favorable conditions for acquisitions and the large proportion of public ownership in some of the banks may also facilitate takeovers. Local banks should start now to prepare for the challenges ahead."

This sentiment is obviously shared by a number of high-ranking regional bankers. "We are living in the age of competition and mergers and acquisitions as part of consolidation would create robust financial institutions," Mohammed Ali Alabbar, chairman of Al-Salam Bank said recently to Arab News when commenting on Al-Salam Bank's planned acquisition of Bahrain Saudi Bank.

Speaking at the sidelines of the World Economic Forum in Jordan, Mashreq CEO Abdul Aziz Al-Ghurair said to Emirates Business 24/7: 'It has never been a better time for any acquisition.'

The study by A.T. Kearney expects the build-up of national champions first, driven by major shareholders as was the case with Emirates NBD. At the same time, regional investment banks may seek to diversify and merge with retail banks. "In the long run, true regional players will emerge," concluded Dr. von Pock.