Complex Made Simple

3 Abu Dhabi banks about to merge: Only 2 emerge winners  

It was in September 2018 when Reuters got hold of the news that Abu Dhabi Commercial Bank (ADCB)  and Union National Bank (UNB) announced they were in three-way merger talks that included Al Hilal Bank in a deal that could form a lender with $113 billion in assets, as estimated by Thomson Reuters data.

Today, Bloomberg announced that the merger would create 2 new banks, not one.

“Under plans being discussed, ADCB would acquire UNB to form a conventional lender,” said informed people asking not to be identified because the talks are private.

“The Islamic divisions of ADCB and UNB would then merge and later take over privately-held Al Hilal Bank, to create a bigger Islamic bank,” the same people said.

Read: ‘We will see more bank mergers in the GCC soon’: Expert

More consolidation

The clear winner would be the mergers and acquisitions (M&As) sector in need of more consolidation moves to tackle declining profits and enable it to provide more complete, and competitive solutions to the public.

Consolidation among Abu Dhabi institutions has been picking up following the slump in crude prices, according to Bloomberg.

The UAE is home to more than 9 million people and has almost 50 banks, including the local units of Citigroup Inc. and HSBC Holdings Plc.

Two of Abu Dhabi’s top banks were merged last year to create First Abu Dhabi Bank (FAB), with total assets of $175 billion.

A tie-up between Mubadala and the Abu Dhabi Investment Council in March created a sovereign wealth fund with about $220 billion of assets.

Video: Can SABB bank’s $5bn merger bid with Saudi Alawwal open doors to M&As?

Mubadala holds a 62.5%t stake in ADCB and 50% of UNB through Abu Dhabi Investment Council.

“While three-way mergers are generally complicated to execute, such a scenario possibly irons out the formalities in a properly coerced manner, and enables a shorter completion time,” Aarthi Chandrasekaran, vice president at Shuaa Capital in Dubai, told Bloomberg.

“The would-be merged entity of ADCB and UNB will possibly be required to shore up the capital of the new Islamic bank.”

Read: ADCB’s first MENA Target Date Funds puts retirees on safe autopilot

ADCB on good footing

Abu Dhabi Commercial Bank said its 9-month net profits jumped 9% to AED3.483 billion ($950 million), thanks to growth in net interest income and Islamic financing income and drop in impairments.

Ala’a Eraiqat, Group CEO, ADCB, said: “The operating environment continues to be influenced by rapid changes in technology, transforming customer expectations and behavior. We are, therefore, investing heavily in digital transformation, talent development, and IT security to position ourselves as a progressive player in this evolving environment.”

Deepak Khullar, Group CFO, ADCB, said net loans were up 1% year-to-date, with the bank continuing to de-risk its unsecured retail loan portfolio while growing its wholesale banking loans by 5%. Customer deposits were up mainly on account of an increase in corporate time deposits. In October 2018, the Bank’s credit rating was re-affirmed by S&P at A/Stable/A-1

On October 30, 2018, ADCB witnessed renewed buying attempting to reclaim its early September high, when the bank announced a possible merger with other smaller banks, according to Gulf News.

 “The trend is up in ADCB and the stock may register another bullish break over the previous high at Dh8.10 and target Dh8.50 in the near term,” Shiv Prakash, senior analyst with First Abu Dhabi Bank Securities (FABS) told the daily.