Gulf banks face merger pressure

FRESH SPECULATION: Shares in Abu Dhabi Commercial Bank rose on Monday as investors bet it would merge with rival National Bank of Abu Dhabi. (ITP Images)

Speculation intensified on Monday that Abu Dhabi's leading banks would face the first forced merger in the Gulf region due to the credit crisis as liquidity in the region tightened.

Shares in Abu Dhabi Commercial Bank (ADCB) soared for the second day as investors bet it would fall into the arms of larger rival National Bank of Abu Dhabi (NBAD), which would create the biggest lender in the United Arab Emirates with a combined market value of around $12.5 billion.

Senior executives at both banks, speaking to Reuters on Sunday, denied any merger plans.

"Now I believe more than before that a merger could take place between the two big banks of Abu Dhabi," said Nabeel Juma, investment director at Emirates International Investment Co.

"Both are owned by the government of Abu Dhabi and it is easy to finalise the transaction," he said.

ADCB is 65 percent government-controlled while NBAD is 70.5 percent government controlled.

The energy-exporting Gulf was briefly spared by the global credit crisis but an exodus of foreign capital in the past month has aggravated tight lending conditions, forcing Gulf central banks to intervene to keep the economy functioning.

Experts say the economic boom in the region, fuelled by a five-fold rise in oil prices since 2002, may have peaked as lending conditions worsen, putting a crimp on property projects, although steady growth powered by oil revenues is assured.

"A merger between the two banks would be logical because of their business profile and their shareholder structure but nothing has been announced or confirmed. There are only rumours," said Sophia El Boury, analyst at Shuaa Capital.

Senior executives at both banks who declined to be named on Monday declined to rule out a takeover bid for ADCB by NBAD.

"It makes perfect commercial sense and the merger will be driven by consolidation, which is a must in a market like the UAE," said a banker at ADCB.

"The competition is getting intense and because of the size of projects. You need to be a big bank to sign mega-deals. Foreign banks are dominant currently because they have the capacity to underwrite big deals now," he said.

A senior NBAD official said Abu Dhabi has been keen to merge its top two banks ever since its neighbour and intense rival Dubai took the top spot in 2007 by merging its top two lenders.

"There could be truth in the rumours or market talk about a possible merger between these two banks," he said.

Emirates NBD , the largest Gulf Arab lender by asset, was formed last year in an $11.3 billion merger between Emirates Bank International and National Bank of Dubai, which like ADCB, were part-owned by the government.

Kuwait became the second Gulf central bank after the UAE on Monday to offer a lifeline to banks struggling to find funding. Saudi Arabia and Oman have said they also stood ready with liquidity to help their banks overcome any dry spell.

Shares in ADCB ended up 8.6 percent with NBAD up 1.7 percent. (Reuters)

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