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M&A activity in GCC banking sector set to slow, says S&P Ratings

The flurry of deals in the Gulf Cooperation Council's banking sector is set to slow as the pool of lenders with common shareholders has shrunk, according to an S&P Global Ratings report.

Common shareholders, many of which are government entities, have driven six of the eight completed or prospective mergers in the Gulf region since 2014.

"The presence of the same shareholders at the acquiring and acquired banks were key to the deals," said the May 27 report. "Most mergers to date have involved banks with common major shareholders. As such, the pool of banks with similar ownership is smaller, which will mean fewer M&A from now on unless economic reasons force the issue"

The wave of mergers began after the oil price fell in 2014, prompting banks and governments to "enhance efficiency, strengthen franchises and boost pricing power," said S&P Ratings.

The deal that resulted in the creation of First Abu Dhabi Bank PJSC, the region's second-largest bank by assets, had government entities on each side, along with some royal family shareholders; while Saudi government entities "on both sides of the table are likely to push ahead talks between National Commercial Bank and Riyad Bank," it said.

An exception is the merger between Saudi British Bank and Alawwal Bank, which only have "marginal" government shareholders in common.

"This transaction was primarily undertaken for economic reasons and due to the desire of some Alawwal Bank shareholders to reduce their presence in the Saudi market," said the rating agency.

None of the eight deals reviewed by S&P Ratings are cross-border mergers and only two involve an Islamic bank tying up with a conventional bank: Barwa Bank QSC and International Bank of Qatar QSC; and Kuwait Finance House KSCP and Ahli United Bank KSCP.

"There are limited opportunities" for M&A in the Gulf, said the report, citing the United Arab Emirates for potential deals, "particularly in Sharjah, Dubai and Abu Dhabi."

The emirate of Abu Dhabi is currently exploring a merger between Abu Dhabi Islamic Bank PJSC and First Abu Dhabi Bank PJSC, while Dubai Islamic Bank (PJSC) is assessing a possible acquisition of Noor Bank PJSC. Abu Dhabi Commercial Bank PJSC, meanwhile, recently completed its merger with Union National Bank - PJSC.

This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings. Descriptions in this news article were not prepared by S&P Global Ratings.