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GCC banks brace for brand new wave of mergers after ‘triple shock’ to profitability – Information

By on March 14, 2021 0


The second wave of mergers and acquisitions might start when the total affect of the weak working atmosphere on banks turns into seen, stated Mohamed Damak, senior director of S&P International Rankings.

GCC banking sector braces for second wave of mergers and acquisitions (M&A) after struggling triple shock to profitability in 2020 attributable to decrease mortgage progress, decrease rates of interest and price increased threat, trade analysts stated.

The second wave of mergers and acquisitions might start when the total affect of the weak working atmosphere on banks turns into seen, stated Mohamed Damak, senior director of S&P International Rankings.

The primary wave of mergers and acquisitions was pushed by shareholders’ need to reorganize their property, together with the upcoming merger between Nationwide Industrial Financial institution and Samba Monetary Group. The deal will lead to a mixed entity with complete property of $ 213.12 billion, in keeping with information from S&P International Market Intelligence, and it’ll create the GCC’s third-largest financial institution by way of property.

“The second wave will likely be extra opportunistic and stimulated by an financial logic. The working atmosphere might push some banks to discover a stronger shareholder or to affix forces with their friends to enhance their resilience, ”Damak wrote within the S&P report“ GCC banking sector: a protracted climb in the direction of restoration ”” .

He stated the brand new spherical of merger might contain consolidation between totally different GCC nations or totally different UAE emirates, for instance. “Nonetheless, this could require extra aggressive administration motion than beforehand.”

The GCC banking sector has skilled a serious consolidation part with 20 banks negotiating mergers and acquisitions with an estimated asset worth of $ 1 trillion. The UAE led the marketing campaign with essentially the most mergers in worth and quantity. In 2019, six mergers and acquisitions had been underneath negotiation within the UAE valued at $ 625.25 billion and two in Saudi Arabia valued at $ 256 billion and one every in Kuwait and Oman.

In Might 2019, Abu Dhabi Industrial Financial institution merged with Union Nationwide Financial institution in Might and the brand new entity took over Al Hilal Financial institution as an Islamic arm. Dubai Islamic Financial institution was the most recent to affix the mergers and acquisitions frenzy, when it absolutely acquired Noor Financial institution in January. The merger of the Nationwide Financial institution of Abu Dhabi and First Gulf Financial institution in 2017 to type the most important financial institution within the United Arab Emirates, First Abu Dhabi Financial institution, and the merger of ADCB, Union Nationwide Financial institution and Al Hilal Financial institution, together with SABB and Alawwal Financial institution in Saudi Arabia had been additionally among the many most important M&A exercise within the GCC banking sector in latest instances.

“The twin problem of the pandemic and extended low oil costs will have an effect on financial institution profitability attributable to slower credit score progress, squeezing internet curiosity margins and better provisioning for dangerous money owed. The income shock will shift administration’s consideration to value self-discipline and consolidation alternatives. Mergers and acquisitions will stay a recurring credit score theme within the years to come back, ”stated the Moody’s analyst. “Banks at the moment are going through bigger value changes as low oil costs and the fallout from the coronavirus restrict progress alternatives and severely cut back their profitability,” stated Badis Shubailat, analyst at Moody’s Traders Service. “That is triggering a brand new wave of mergers as banks search for methods to sort out the strain on revenue.”

Benjamin Younger, director of S&P International Rankings, expects average mortgage progress in all GCC nations besides Qatar and Saudi Arabia.

In Arabia, mortgage lending continues to develop as a result of authorities’ objective of accelerating residence possession, whereas in Qatar authorities plans are boosting progress. Enterprise demand is probably going to enhance solely barely, with some capital spending postponed into 2020 and debt refinancing could happen this yr, Younger stated.

“We anticipate asset high quality to deteriorate throughout the board, with a rise in NPLs. This is not going to be facilitated by the lifting of regulatory forbearance measures, though we anticipate it to be gradual. We imagine that the measures carried out by a lot of the central banks within the area assist liquidity however don’t take away or cut back credit score threat from banks’ steadiness sheets but, ”Younger stated.

The S&P analyst stated the price of threat would stay excessive after leaping 60% in 2020, as banks put aside provisions to arrange for extra stress, whereas financial institution capitalization continued to assist their solvency in 2021, stated Younger.

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Issac Jean

Editorial Director of Khaleej Instances, is a well-connected Indian journalist and financial and monetary commentator. He has labored in UAE mainstream journalism for 35 years, together with 23 years with Khaleej Instances. A graduate in English and a graduate in economics, he has received over two dozen awards. Acclaimed for his real and insightful evaluation of worldwide and regional enterprise and financial tendencies, he’s revered for his astute understanding of the native enterprise scene.




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