Gulf banks are too small to compete with their global rivals and must merge if they are to survive, the managing director of the International Bank of Qatar (IBQ) has said.
In comparison to global lenders, Arab banks lag behind in terms of assets and size, said managing director George Nasra.
“If you look at the total assets of the 10 largest banks in the Arab world or the Gulf area, they are around $530bn, while on the other hand, the total assets of one Spanish bank, Santander, is around $1.6 trillion. In global terms, banks in the Gulf are small and they need to consolidate,” he told Arabian Business.
Doha-based IBQ is in the final stages of negotiations for a merger with Al Khaliji Bank, the Gulf state’s sixth largest bank by market value. The merger is slated for completion in the first half of 2011.
Such deals will be key to thinning out the Gulf’s saturated banking sector, Nasra said.
“To take the case of Qatar, you have seven commercial banks, four Islamic banks and seven branches of foreign banks, for a total population of 1.6 million. The country is definitely overbanked and the sector is ripe for consolidation,” he said.
Regulatory hurdles are a crucial factor in the lack of consolidation seen in the Gulf’s banking sector. An added complication is the state links of banks including National Bank of Abu Dhabi and Qatar National bank, which are majority owned by their respective government.
“[This] makes a merger more or less political,” said Nasra. “To be honest with you, I don’t see any reason what so ever for the continuation of government ownership for these banks. Most, if not all, of these banks are very profitable, financially very sound and very well managed… [and] can work on a more commercial basis.”
The activity would also give a much-needed boost to the region’s bourses, if commercialised banks went on to primary or secondary listings.
“If they were to be listed… they will increase liquidity in the market. And they would provide investment opportunities for GCC citizens,” he said.
The merged unit of Al Khaliji and IBQ will be Qatar’s third largest bank by capitalisation. The bank expects to list on the Qatar exchange, Nasra said.
Subscribe to Arabian Business' newsletter to receive the latest breaking news and business stories in Dubai,the UAE and the GCC straight to your inbox.