Merger of three UAE banks would be credit positive for sector - Moody's

ADCB has said the merger talks are at "a very preliminary stage" and may not result in a deal
Merger of three UAE banks would be credit positive for sector - Moody's
In a sector report published on Monday, Moody’s said “the merger would increase banks’ pricing power, reduce pressure on their funding costs and increase their ability to meet sizeable investments.”
By Bernd Debusmann Jr
Wed 12 Sep 2018 11:00 AM

A possible merger between Abu Dhabi Commercial Bank, Union National Bank and Al Hilal Bank would be credit positive for the UAE’s banks, Moody’s Investors Service said earlier this week.

In a sector report published on Monday, Moody’s said “the merger would increase banks’ pricing power, reduce pressure on their funding costs and increase their ability to meet sizeable investments.”

Moody’s also noted that the merger would contribute to the consolidation of the “overbanked” UAE banking sector, which, in turn, “will increase banks pricing power, reduce pressure on their funding cost and increase their ability to meet sizeable investments.”

Last week, ADCB said it was said it was in talks with the other two banks. If the merger takes place, it will lead to the creation of the Gulf’s fifth largest banking institution, with over $110 billion worth of assets.

However, a statement to the Abu Dhabi Securities Exchange – were its shares are traded – ADCB said the discussions “are at a very preliminary stage and may not result in a transaction.”

Additionally, the Moody’s report noted that bank competition in the UAE – where 60 banks serve a population only 9 million – has increased in recent years due to the decline in economic and credit growth caused by lower oil prices.

“Consolidation of the banking system will also diminish the competitive pressure for funding,” the report added. “The competition for concentrated deposit sources, combined with the increase in US interest rates, is contributing to an increase in UAE banks’ funding costs.”

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