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.