Abu Dhabi is engineering a second bank merger in its latest attempt to stay competitive in an era of lower oil prices.
Three of its state-linked banks are in talks to combine into an institution with US$110 billion in assets, said Abu Dhabi Commercial Bank PJSC (ADCB), one of the lenders.
The negotiations follow a tie-up between Abu Dhabi’s two biggest banks last year and the merger of sovereign wealth funds in March.
Photo: Bloomberg
“This is entirely consistent with the moves over the past few years toward tighter financial control and elimination of duplicated costs in Abu Dhabi Inc,” said Hasnain Malik, the global head of equity research and strategy at Exotix Capital in Dubai.
Abu Dhabi, home to 6 percent of global crude reserves, has stepped up efforts to create leaner and more competitive financial institutions.
There are nearly 50 banks operating in the United Arab Emirates serving a population of about 9 million. The industry is ripe for combinations, even if the merged lenders are comparatively small globally.
In the latest deal, listed lenders ADCB and Union National Bank are considering combining with privately held Al Hilal Bank to create the fifth-largest bank in the Gulf Cooperation Council.
An agreement could be reached as soon as this month if talks are successful, two people with knowledge of the talks said, asking not to be identified because the discussions are private.
ADCB said that the negotiations were under way in a statement released after Bloomberg’s initial story.
It said the discussions were “currently at a very preliminary stage and may not result in a transaction.”
“With a mega-bank, they will have the balance sheet to compete,” Manulife Asset Management Ltd senior analyst Richard Segal said. “This will send a strong signal to other countries in the region that are over-banked to move forward more quickly.”
While Brent crude this year touched four-year highs near US$80 a barrel, forecasts show it is unlikely to sustain these levels in the next few years.
Abu Dhabi is the wealthiest of the seven-member council and the biggest oil producer. The bank mergers are part of a broader strategic shift on the part of Abu Dhabi’s rulers to prepare for a future when oil’s global dominance is set to wane, especially as electric cars become the norm over the next two decades.
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