A merger of National Bank of Abu Dhabi (NBAD) and its competitor FGB would combine a lender that’s strong in corporate banking with one that is dominant in retail banking in the emirate, analysts said.
It’s a combination they said would also help improve profitability in a crowded industry, especially at a time when lower oil prices are hampering growth prospects. The two banks this morning confirmed that they are in merger talks.
Even though NBAD, the biggest bank by assets in the emirate, has made headway in building its consumer banking business in recent years, it would get a boost from joining forces with FGB, which has more loans to individuals on its books.
“FGB would benefit from much stronger wholesale banking proposition, after cutting back on ambitious plans this year by letting go a few hundred bankers,” said Jaap Meijer, head of research at Arqaam, the Dubai-based investment bank. “NBAD is underrepresented in retail.”
Mr Meijer said the combination, if completed, would create the second largest bank by market capitalisation in the Middle East after Qatar National Bank.
More than 50 banks and financial institutions serve over 9 million customers in the UAE, making it one of the most overbanked markets in the region. A combination of NBAD and FGB would be the biggest banking merger in the UAE since Emirates Bank International and the National Bank of Dubai joined forces in 2007 to create Emirates NBD.
Banking executives have for a long time urged consolidation in the industry to make it more efficient and profitable.
“We believe that consolidation would be positive for UAE banks from a return generation perspective,” Waleed Mohsin, a Dubai-based analyst at the investment bank Goldman Sachs, said.
“This is especially true given the fragmented nature of the market and the current challenging macro environment.”
Shabbir Malik, a Dubai-based analyst at the Egyptian investment bank EFG-Hermes, said that possibilities for a potential merger may see FGB absorbed into NBAD as it has a larger asset base and is more strategically important for the Abu Dhabi government. Another scenario may see FGB and NBAD become subsidiaries of a newly created holding company, as was done when Emirates NBD was created by merging EBI and NBD.
The due-diligence process, or the period when the banks look at each others’ books, could take six months. A subsequent merger would then possibly take another year to a year and a half to complete, he said.
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