date of publication:
March 08, 2022 23:00 GMT
Update date: March 09 2022 1:20 GMT
At the end of the first quarter of this year, the UAE market is witnessing strong moves towards the merger of the two largest banks in the capital, Abu Dhabi, in a move that leads to supporting the country’s national economy.
Analysts said, in statements to “Erm News”, that expanding the circle of mergers during the current period will enhance competitiveness within the country’s banking sector as a result of creating giant entities that work on the principle of enhancing profitability and reducing costs, which is in line with the “economics of scale” strategy used to reduce costs from during an increase in production.
The UAE’s First Abu Dhabi Bank and Abu Dhabi Commercial Bank are moving to finalize a possible merger, according to Arab media.
The Institute of International Finance and the International Monetary Fund had issued recommendations on strengthening the UAE banking sector, including the trend towards implementing economies of scale.
Enhance creditworthiness
The international rating agency, Moody’s, praised the UAE banking merger operations, as it enhances the ability of financial banks to meet the requests for financing the huge investments carried out within the Emirates.
And economic analyst, Abdul Hamid Al-Sajdi, believes that the merger of the largest banking entities in Abu Dhabi enhances the position of UAE banks in the global banking markets, in light of the attention of foreign investors towards the Emirates.
In statements to “Erm News”, Al-Sajdi demonstrated the positiveness of the merger process, saying: The number of banks in the UAE is large, compared to the population, and the heavy presence of exchange machines meets the needs of expatriates, and working according to economies of scale is much better.
According to data from the UAE Central Bank, the number of banks operating in the market is regarding 59, and accordingly it is classified as one of the largest countries in the world in terms of banking coverage despite the low population.
He continued, “The union of the two largest banks in the country enhances the creditworthiness of the UAE, thus making it at the forefront of the Gulf countries in terms of owning the largest bank in terms of assets.
It is noteworthy that the two banks are listed on the capital market, Abu Dhabi, and the combined market value of them exceeds 320 billion dirhams, according to Abu Dhabi money market data at the end of trading on Monday.
Meanwhile, Ehsan Khoman, Head of Research and Strategy for the Middle East and North African Markets at Mitsubishi UFG Financial Group, believes that the rise in the value of the banking sector’s assets in the UAE to regarding $738 billion makes it the first in the Gulf region.
Khoman also supports the mechanism of the merger process initiated by the UAE market during the past ten years, because the increase in banks reduces the chances of reducing the fees charged to customers in exchange for the service, according to translated statements from the English newspaper “Gulf News”.
expansion
In turn, Emirati analyst, Dr. Jassim Khalfan, believes that the purpose of the mergers of major banking entities is to achieve further expansions for them in the Middle East and Africa, covering all service and financing fields.
He added, in statements to “Erm News”, that the UAE supports the trend of merger operations between banking sectors, because this strengthens its budget, as a result of reducing exchange rates due to the dispensation of thousands of jobs in light of artificial intelligence.
He expected that the market would witness more merger deals in the banking sector, once morest the background of the reorganization process that it has pursued for years.
Deal
Although none of the officials of First Abu Dhabi Bank and Abu Dhabi Commercial Bank has commented on the merger deal, sources told Al Arabiya that negotiations are still ongoing, and if an agreement is reached between the two banks, the merger may be officially announced in the second quarter of this year or Third at the latest.
At the end of 2016, the UAE recorded the largest merger process following the shareholders of the First Gulf Bank and the National Bank of Abu Dhabi approved the proposed merger, resulting in the largest financial entity in the UAE, First Abu Dhabi Bank, with total assets of regarding 655 billion dirhams, and a market share estimated at 27 % of the UAE banking sector.