Emirates Bank International and National Bank of Dubai plan to merge at the behest of Dubai's ruler in a deal which would create the largest lender in the United Arab Emirates, with $45 billion in assets, it was announced on Tuesday.
"The whole thing is a realisation from the Dubai government that there is a need for a strong bank that will participate in developing the economy," Sulaiman al-Mazroui, Emirates Bank's chief manager of group affairs, told Reuters on Tuesday.
"This was a decision by the government of Dubai," he said, adding the two banks, which first attempted a merger in 1999, were still working on details of the deal.
The new entity would have a market value of $12.03 billion at Tuesday's closing prices, surpassing the country's largest lender, National Bank of Abu Dhabi, in both assets and value.
The official news agency WAM said the deal was agreed with the blessing of the emirate's ruler, Sheikh Mohammed bin Rashid al-Maktoum "at the wish of the banks." Neither bank had announced plans for a merger.
The government of Dubai, part of the oil-exporting UAE federation, owns around 14 percent of National Bank of Dubai, the emirate's fourth largest lender by market value, and about 77 percent of Emirates Bank, the biggest bank in Dubai.
"With economies growing so big, we need bigger banks," said Anis al-Jallaf, a director of Emirates Bank.
Economic growth in the UAE is surging on a tripling of oil prices in the five years to July. The UAE's economy, the second largest in the Arab world, grew 10.2 percent in 2006, Standard Chartered Bank estimated in January.
The merger could also be part of efforts to prepare the banking sector for competition, with the UAE negotiating trade deals with the United States and the European Union, said Wadah al-Taha, head of strategy at Emaar Financial Services.
The size of the new bank could spur more consolidation in the sector. "It will make the authorities in Abu Dhabi think seriously about a similar move," said Abdullah Salah Abdul Rahim, chief operating officer of National Bank of Abu Dhabi, majority owned by the government of the largest emirate.
The merger makes financial sense for two banks with very different balance sheets, said Raj Madha, senior research analyst at Cairo-based investment bank EFG-Hermes.
The ratio of Emirates Bank's customer loans to deposits was about 135 percent at the end of 2006 while National Bank of Dubai's was just under 90 percent, he said.
Emirates Bank Chairman Ahmed al-Tayer will be the chairman of the new bank, Mazroui said. Abdulla Saleh, chairman of the National Bank of Dubai, will be vice-chairman.
"There is a process to align the value of the shares of the two banks," he said.
The lenders were on the threshold of a merger deal in 1999 when the chairman of National Bank of Dubai died.
"It stayed in the minds of everyone, especially Emirates Bank," said Jallaf, who stepped down as chief executive last year. The Emirates Bank board approved the plan, he said.
National Bank's spokesman declined to comment.For all the latest banking and finance news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
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