- Smaller scale consolidations could still happen in overbanked countries to ‘help improve banks’ performance and financial stability
DUBAI: The Gulf banking sector may experience fewer mergers and acquisitions, with the remaining pool of lenders seeing limited bases – except for economic reasons – for them to consider consolidation deals.
“Most mergers to date have involved banks with common major shareholders,” S&P Global Ratings said in a report. “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 rating agency however noted that given the overcapacity of some Gulf banking systems, particularly in the UAE and Oman, smaller scale consolidations could still happen to ‘help improve banks’ performance and financial stability.
In the UAE, there are 49 commercial banks serving a population of about 9 million while 20 banks in Oman serve a population of about 4.7 million.
“The presence of a significant number of banks in these two countries means that smaller players typically have to differentiate by focusing on specific segments like Islamic banking, riskier clients rejected by larger lenders, or by competing on price,” S&P Global Ratings said, which could be enhanced by seeking synergies with other lending institutions.
“Any future M&A would require more aggressive moves by management than those seen in the past. The added hurdles of convincing boards and shareholders, who face the possibility of seeing their assets diluted or losing control, means the next wave of deals may take longer to build than the current one,” it added.