The consolidation of Bank of Baghdad will increase the size of United Gulf Holding's balance sheet by $1 billion/Bloomberg
by Kudakwashe MuzoriwaBahrain’s United Gulf Holding (UGH) has secured Central Bank of Iraq’s approval to acquire a stake in Bank of Baghdad.
In a bourse filing, UGH stated that it has received approval from the Central Bank of Iraq to acquire a 51.8 per cent stake in Bank of Baghdad from Kuwait-based Burgan Bank.
UGH expects the consolidation of Bank of Baghdad, one of the largest commercial banks in Iraq, to be profit accretive going forward for the company and will increase the size of its balance sheet by $1 billion.
The firm said that in the medium-term debt will increase by $55 million which was acquired to fund the acquisition.
Earlier this month, Kuwait’s Burgan Bank signed an agreement to sell its majority stake in Bank of Baghdad to UGH as the bank considers reducing group-wide non-performing loans, exit riskier assets and consolidate position in the domestic market.
Burgan Bank stated that the transaction is projected to have a one-off negative impact of around KWD 9 million on Burgan Bank's 2020 net income and part of this impact of around KWD 4 million is expected to be reversed after completion of the transaction,
The Kuwaiti lender said that the transaction will have a positive impact on the Burgan Group’s asset quality with a reduction in non-performing loans (NPL) by around KWD 34 million which has an impact of around 70bps on the group NPL ratio
The GCC financial services industry is witnessing a wave of consolidation as banks seek ways to improve competitiveness and boost capital amid slowing economic growth.
Regional banks are looking to exit riskier assets to maintain profitability amid tightening margins and softer lending growth. Bank mergers in the region have also picked up pace in recent years as lenders try to gain scale and drive efficiencies to face tough market conditions against a weaker global economic backdrop.
Similarly, subdued credit growth, competition for deposits, higher cost of funds and deteriorating asset quality are driving consolidation in the regional banking sector.
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