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Mon 27 May 2019 02:14 PM

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GCC's wave of bank mergers 'almost over', says S&P

Ratings agency says pool of GCC-based banks with common major shareholders is shrinking which will mean fewer M&A from now on

GCC's wave of bank mergers 'almost over', says S&P
According to Bloomberg, more than 20 Gulf financial institutions with total assets exceeding $1 trillion are in merger talks.

The cycle of bank mergers in the Gulf Cooperation Council (GCC) over the past 24 months is coming to an end, according to S&P Global Ratings.

In a new report, the ratings agency said the pool of banks with common major shareholders is shrinking which will mean fewer mergers and acquisitions from now on.

"Some market observers attribute the renewed interest in mergers by banks in the GCC to the less supportive economic conditions since second-half 2014, when oil prices started to drop," said S&P Global Ratings credit analyst Mohamed Damak.

"We believe the reason is the desire to further enhance efficiency, strengthen franchises, and boost pricing power among banks with the same major shareholders. We see these operations akin to shareholders reorganizing their assets rather than genuine mergers, although the economic benefits are clear and reportedly significant," added Damak.

S&P said that a new wave of acquisitions motivated by purely economic reasons could follow, but added that it may take longer to build than the current one given the added hurdles of convincing boards and shareholders, who face the possibility of seeing their assets diluted or losing control.

According to Bloomberg, more than 20 Gulf financial institutions with total assets exceeding $1 trillion are in merger talks, part of an unprecedented wave of consolidation in the region’s financial industry.

The latest banks said to be in talks are Dubai Islamic Bank and smaller rival Noor Bank. An acquisition would create a lender with AED278 billion ($76 billion) in assets.

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