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Wed 18 Nov 2009 03:48 PM

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Any Gulf bank mergers to focus on Kuwait, UAE - S&P

Ratings agency doesn't see big M&A trend in GCC in foreseeable future.


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, a top Standard and Poor's analyst said.


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 Emmanuel Volland, S&P's Senior Director of Analytical Ratings for Middle East and North African Financial Institutions.


However, with banks still coping with fallout from the global slump, "we do not expect a massive trend in mergers and acquisitions in the (GCC) in the foreseeable future," he told Reuters in an interview late on Tuesday.


"We may first see some transactions at national levels, especially in countries where there are a lot of banks like in Bahrain and the UAE, but much less in Saudi Arabia or Qatar.


"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."


He also cited the Kuwaiti banking sector as potentially ripe for mergers.


"Kuwaiti banks know they have only a very limited number of new customers entering the market every year, so they have to fight hard to attract them," Volland said.


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.


"Saudi Arabia proves to have a very well balanced banking sector in terms of the number of banks ... There are good margins. There is a limited number compared to the size of the population," Volland added.


"(Saudi) banks can afford to have more conservative policies, and ask for more collateral as their bargaining power is higher".


The fact that many banks in the Gulf Arab region are controlled by wealthy individuals or government could impede mergers. "There are cultural obstacles for mergers and acquisitions in the Gulf," he said.


At present, banks in the region are more concerned about dealing with fallout from the global financial crisis and its impact on some family-owned firms and the real estate sector, Volland said.


"Most banks have put on hold their expansion strategies, as they are asking why should we expand. Times now are more difficult." (Reuters)


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