More UAE bank mergers predicted in 2010 - Ethos

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There are too many banks in the UAE and 2010 will see an increase in mergers, according to the head of a consultancy firm that ranks the country's banking sector in an annual report.

There were 46 new bank branches set up in the UAE in the first ten months of the year and the total number of branches rose from 611 in 2008 to 657, according to the Central Bank’s latest monthly report.

“I have always said there was too many banks in the country for the number of people,” said Robert Keay, managing director of Ethos Consultancy, which recently released the 5th Annual Service Quality Bank Benchmarking Study.

“That is too many, it is incredible,” Keay said of the 27 retail banks currently operating in the UAE.

“I think there will be more Emirates NBD type mergers ahead without any shadow of a doubt.

“I don’t think any will go under, I don’t think the Central Bank would allow that happen.”

Keay said he believed that mergers among the UAE’s banks “will be a key focus as the country changes in the coming years”.

He added that this is because of the static pool of available customers, reduced lending and fee generating opportunities and increased competition.

On Wednesday, a Standard and Poor’s analyst also said that any near-term merger activity among Gulf Arab banks is likely to focus on the UAE, Kuwait and Bahrain, where margins are low and the customer base relatively small.

"The UAE market is very competitive and that proved to be a negative factor for the banking sector. The margins are low compared to other GCC countries, and it is more difficult to deal with the good customers," said Emmanuel Volland, S&P's Senior Director of Analytical Ratings for Middle East and North African Financial Institutions.

Mergers are far less likely in Saudi Arabia, the biggest Arab economy, where a lower concentration of lenders helps promote profit growth and prudent risk management, said Volland.

Earlier this month, Oman Central Bank Executive President Hamood Sangour Al Zadjali said Gulf central banks should encourage cross-border bank mergers in the wake of the financial crisis to build up strong financial institutions.

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Posted by: Wildwine

Yes we do have more banks than we need, but consolidation should never be imposed! There should be definite synergies between the banks and respective cultures of the banks should be looked in to. If you look at Emirates, NBD merger; there were synergies, a large regional bank (Emirates) with a large local bank (NBD). I am not too sure, whether the cultures were compatible. Ideally a large Corporate Bank should look to merge with a large Retail bank, then both banks achieve a win-win situation and have more space to grow! I don't agree that differences are few; may be on the face of it (e.g. back office vendors, systems etc.) but most imporant are ORGANIZATIONAL CULTURE AND PEOPLE (both internal and external) where there can be vast differences & incompatibilities!!!

Posted by: ben

would like to see the following banks merge into 1 Dubai Bank Sharjah Islamic Bank Bank of Sharjah Ajman Bank RAK Bank NBF NBQ On their own, each bank is not even on the radar, but together they can be a force to reckon with. Good coverage, one brand, one bank covering all the emirates with various strong points represented by each one. will also bump up the m&a activity in the country too. CBD and UNB can also be a good match- AD and DXB bank with good commerical and institutional client base.

Posted by: Tristan de Ferluc

Published initially on Wednesday 4 March 2009 _____________________________________________________ UAE banks would benefit from a rationalization of the offer Posted by Tristan de Ferluc, Abu Dhabi, UAE on Wednesday 4 March 2009 at 16:33 UAE time What does it mean ? Theoretically, the banking sector, excluding specialized financing companies, would need a conventional and an islamic product offer to satisfy all customers needs (individuals, small businesses, corporates and governments). Taking into consideration the specific structure of the UAE, each emirate needs to have its own window, at least one offer whether conventional or islamic. On top, to guarantee a healthy competitive market, you need a few companies in each category, especially in the biggest emirates. If we consider the 5 smaller emirates could do with a maximum of one conventional and/or one islamic and the bigger emirates with two in each category, the global figure would come down to a maximum of 15 local companies, the foreign companies contributing to maintain pressure on competitiveness of the market. Looking at the current UAE market structure, it appears there are some big local players but no specific leader, the big players being mainly controlled by governments. A rationalization of the offer would consist of reducing the number of companies, especially those having the same key shareholders, by merging them to get players with : ? bigger customer base: good to tap liquidity and save on funding costs, good to dilute the weight of unitary risks ? bigger size: good to decrease funding costs through better rating, increase funding power to finance bigger projects and improve own efficiency and profitability and as a consequence, a better return to shareholders The UAE market would give birth to a limited number of stronger players, able to develop further in the Middle-East and able to compete more efficiently with international players. In the present difficult context, it seems to be the right time to perform this first step before participating later on to an inevitable middle-east banking consolidation. ______________________________________________________ This remains clearly the next step but three psychological barriers prevent currently companies from moving forward : - economic environment and deteriorated performances in 2009 especially in banking - the fear of merging as this requires strong acumen to target the right company, strong project expertise to perform the merger and strong vision to make it work - the history is full of hope and disappointment - the pride of either shareholders or top management with the associated risk of losing control over the company, even losing job as key positions are not doubled On the strategy to do it, one has to bear in mind it is potentially less difficult, less painful and more fruitful when it is co-decided by the parties who share the same vision, thus excluding takeovers through the stockexchange. It will probably be less expensive as well.

Posted by: Yasser

I have worked in two different local big banks and I can tell you the differences are small and the overlap are there. Most banks back offices use the same external venfors to upgrade their systems, retail networks, and products and millions spent on training staff and customers are still not happy. Its high time banks merge, reduce cost, capitlize on each others resources, and cut the fat of VPs and SVPs who collect big bonuses they cannot and will nto get in their home countries. The same applies to the so-called Islamic Banks which are pooping up like fast food and selling products and services in the name of faith no better quality than commercial banks

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