The spate of bank mergers in the Arabian Gulf should reduce overcapacity in the overcrowded sector and boost lenders' profitability through increased pricing power, according to a report by Moody's Investor Service.
Consolidation among Gulf banks will help stem the increase in funding costs and improve lenders' earnings in the long run, credit rating agency Moody's said in a report on Tuesday.
"Slow growth and subdued credit demand in the region is one of the biggest drivers of consolidation," Ashraf Madani, a vice president and senior analyst at Moody's, said. "This has intensified competition for depositors and borrowers, dampening profits at GCC banks."
Bank merger activity in the Gulf intensified over the last two years after low oil prices hit state budgets, increased bad loans and squeezed lenders' profit margins amid slowing economic growth in the oil-rich region. The latest in a series of merger announcements was Saudi Arabia's largest lender National Commercial Bank announcing on December 24 that is in preliminary talks to merge with rival Riyad Bank in a move that could create the third-biggest bank by assets in the GCC.
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Read more:
GCC banks lenders unite to be leaner and efficient in tough conditions
Abu Dhabi's ADCB in merger talks with UNB and Al Hilal Bank
National Bank of Bahrain in talks to increase its stake in BIB
Sabb and Alawwal approve merger to create third-largest Saudi bank
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"Despite integration challenges in the early stages, merged banks will gain market share, have better pricing power and cost synergies," Moody's said in its January 15 report. "Consolidation will help stem rising funding costs and improve profitability in the long run.
The GCC banking sector has many banks serving small populations, driving intense competition and aggressive pricing policies, Moody' said.
In Oman, for example, there are 20 licensed banks serving a population of 4.6 million people. This compares with Saudi Arabia where only 27 banks serve a population close to 33 million.
NCB and Riyad Bank’s proposed tie-up follows Saudi British Bank and Alawwal bank’s merger announced in early 2018. Boards of the two lenders in October approved a merger agreement that will create a financial entity with $73bn in combined assets.
In the UAE, the second-biggest Arab economy, Abu Dhabi Commercial Bank, the second largest lender in the capital, is in talks for a possible three-way merger with Union National Bank and Sharia-compliant Al Hilal Bank, which could create the Gulf’s fifth largest banking entity with about $114bn in combined assets.
Company%20Profile
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THE DETAILS
Solo: A Star Wars Story
Director: Ron Howard
2/5
Herc's Adventures
Developer: Big Ape Productions
Publisher: LucasArts
Console: PlayStation 1 & 5, Sega Saturn
Rating: 4/5
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Women%E2%80%99s%20T20%20World%20Cup%20Qualifier
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THE SPECS
2020 Toyota Corolla Hybrid LE
Engine: 1.8 litre combined with 16-volt electric motors
Transmission: Automatic with manual shifting mode
Power: 121hp
Torque: 142Nm
Price: Dh95,900
Company%20Profile
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England Test squad
Joe Root (captain), Moeen Ali, James Anderson, Jonny Bairstow (wicketkeeper), Stuart Broad, Jos Buttler, Alastair Cook, Sam Curran, Keaton Jennings, Dawid Malan, Jamie Porter, Adil Rashid, Ben Stokes.
The Perfect Couple
Starring: Nicole Kidman, Liev Schreiber, Jack Reynor
Creator: Jenna Lamia
Rating: 3/5
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Race%20card
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COMPANY%20PROFILE
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The specs
Engine: Long-range single or dual motor with 200kW or 400kW battery
Transmission: Single-speed automatic
Max touring range: 620km / 590km
Price: From Dh250,000 (estimated)
Race card for Super Saturday
4pm: Al Bastakiya Listed US$250,000 (Dh918,125) (Dirt) 1,900m.
4.35pm: Mahab Al Shimaal Group 3 $200,000 (D) 1,200m.
5.10pm: Nad Al Sheba Conditions $200,000 (Turf) 1,200m.
5.45pm: Burj Nahaar Group 3 $200,000 (D) 1,600m.
6.20pm: Jebel Hatta Group 1 $300,000 (T) 1,800m.
6.55pm: Al Maktoum Challenge Round 3 Group 1 $400,000 (D) 2,000m.
7.30pm: Dubai City of Gold Group 2 $250,000 (T) 2,410m.
The specs
Engine: 2.0-litre 4-cyl turbo
Power: 201hp at 5,200rpm
Torque: 320Nm at 1,750-4,000rpm
Transmission: 6-speed auto
Fuel consumption: 8.7L/100km
Price: Dh133,900
On sale: now