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GCC Islamic banking sector likely to see surge in M&A, Fitch says

Islamic banks in the Gulf Cooperation Council are likely to engage in M&A to access growth opportunities and take advantage of cost synergies, according to Fitch Ratings.

The rating agency said Aug. 7 that stiff competition and the ability of conventional banks to offer Islamic financing services in some countries means that some of the newer Islamic banking institutions are struggling to grow in the GCC, a bloc comprising Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates.

A number of deals are currently in motion, including Kuwait Finance House KSCP's proposed acquisition of Bahrain-based Ahli United Bank BSC and Dubai Islamic Bank (PJSC)'s likely takeover of Noor Bank PJSC. If achieved, the mergers will make both companies big Islamic banking players in the region.

Saudi lender National Commercial Bank is also pursuing a merger with peer Riyad Bank but it may have to alter its objective to fully transform into an Islamic bank due to the latter being a conventional bank, the report said.

Fitch said that it seems likely that Abu Dhabi Commercial Bank PJSC, following its acquisition of Al Hilal Bank PJSC, would adopt Emirates NBD Bank PJSC's business model of carrying out the majority of its Islamic banking activities through a subsidiary.

In addition, any potential deal would likely require government approval given the substantial stakes held by sovereign entities in domestic banks in the Gulf region, the agency said.