Tuesday 04, September 2018 by Bloomberg

Abu Dhabi said to weigh three-way merger to create banking giant


Abu Dhabi is exploring a potential merger between three of its banks to create a lender with about $110 billion of assets.

Abu Dhabi is exploring a potential merger between three of its banks to create a lender with about $110 billion of assets as the oil-rich emirate moves ahead with the consolidation of state-controlled companies.

Abu Dhabi Commercial Bank PJSC and Union National Bank PJSC, which are both listed locally, are in talks to combine with privately-held Al Hilal Bank, according to people with knowledge of matter. If successful, a deal could be announced as early as this month, two of the people said, asking not to be identified because the talks are private.

The potential tie-up would create the Gulf Cooperation Council’s fifth-largest bank and comes as the industry battles falling profits because of lower government spending, slower economic growth and a decline in asset quality. ADCB has a market value of about $10 billion, while UNB’s is $2.9 billion.

Consolidation among Abu Dhabi institutions has been picking up as the sheikhdom manages its wealth following the slump in crude prices. The emirate’s two largest lenders—National Bank of Abu Dhabi and First Gulf Bank—completed a merger last year to create First Abu Dhabi Bank PJSC. A tie-up between Mubadala Investment Co. and the Abu Dhabi Investment Council in March created a sovereign wealth fund with about $220 billion of assets.

“As the merger of FAB has played out positively, the smaller banks are feeling the competition now, forcing them to consolidate and stand up against the mega bank,” said Joice Mathew, the head of equity research at United Securities in Muscat. “This move might help in enhancing the competitive positioning of these smaller banks, especially ADCB.”

UNB shares rose 4.3 per cent, while ADCB advanced 0.6 per cent on Monday. The Abu Dhabi Securities Market Banks Index, which tracks 13 banking and financial services companies, has risen 26 per cent this year, compared with a 12 per cent gain for Abu Dhabi’s general index.

Mubadala, which holds a 62.5 per cent stake in ADCB and 50 per cent of UNB through ADIC, declined to comment. ADCB also declined to comment. Al Hilal Bank and UNB didn’t immediately respond to requests for comment. ADIC also owns all of Al Hilal Bank.

The common ownership should make a potential merger “seamless,” Mathew said. “I see synergy opportunities in the cost of funding, efficient capital deployment, and stronger balance sheet to stand up against competition in the wider regional perspective.”

Features & Analyses

Economics Adapting to a new era

  Abdullah Al-Fozan, Chairman of KPMG MESA and KPMG Saudi Arabia, provides an exclusive commentary on the Kingdom’s business… read more