Mergers, you can bank on it

Forget lacklustre IPOs and talk of taxation gradually infiltrating the hearts, minds and wallets of Gulf residents, what the GCC business world should really be focusing on is the amount of banking mergers that are going to take place over the next two to three years. In the UAE alone there are 46 banks; in Qatar there are 15 and rising; Bahraini banks are increasing by the month; while Saudi finance houses continue to gain in strength and look at their options elsewhere. The place is overbanked, and overbanked by a mile.

After speaking to many industry players, bankers and analysts over the last few weeks they are in complete agreement that the sector is in desperate need of a dramatic shake-up. Of course the majority of banks are doing well and for some there is no reason to change whatsoever, but there's one nagging problem that is causing many banking bods to re-think their long-term strategies: International expansion and foreign markets.

If they want a larger slice of the corporate, retail and Islamic finance pie, they're going to have to merge.

Hassan Heikal, co-chairman and CEO of the highest performing investment bank in the region, EFG-Hermes, told me last week that there would be 10 mega banks in the Gulf within two to three years. After some major consolidation in the telecoms sector where five mega players, including QTel, Etisalat and MTC have taken the market by storm, Heikal and many of his peers believe it is only a matter of time before the 100 or so local banks follow in their high-tech footsteps.

"It is happening in Egypt and North Africa, in Oman and in Bahrain," he insists. "What has taken place in the telecoms market, consolidation into four or five mega players, is happening on the banking side. You will find 10 mega banks, mega by regional definition of mega, in the region in the next two to three years."

So strong is the will of many of the financial players that advisors, brokers, asset managers and investment banks are queuing up to assist them in their search to merge and grow their customer base, product range and global reach.

Heikal's backlog of deals today is predominantly in regional banking mergers and acquisitions, he says, and I believe him. A spectacular shift in the way banks operate and the way they are structured is only around the corner. This has not been sparked off by the Emirates Bank International/National Bank of Dubai merger, says one analyst, this was just a reaction to the desire of wanting to play with the big boys abroad.

The EBI/NBD deal will create the Gulf's largest bank by assets with a combined capitalisation of around US$11.25bn and encourage regional advisors to take on larger mandates, but more importantly, it will create the first of the GCC's 10 mega banks, and one that will be ready to take on the world when everything is put in place.

READERS' COMMENTS

MORE FROM ARABIANBUSINESS.COM