DUBAI: Big-ticket consolidation activity remains elusive for the Gulf banking sector despite this year’s merger of the UAE’s two biggest banks, an industry report from Al Masah Capital said.
The persistent weakness in oil prices and rising budget deficits — which resulted in the withdrawal of public money from lenders — have trimmed the Gulf banks’ profitability, and thus have strengthened the rational for reducing the density of lenders operating in the region.
“The rationale for such consolidation are focused toward reducing costs, increase product offerings, diversification of risk and improve cost efficiencies. More importantly, the consolidations have been aimed to create a bigger bank to be able to compete in a challenging and highly competitive environment,” Al Masah said in the report.
During the past decade, Bahrain was the Gulf’s most active center for mergers and acquisitions in the region with 20 deals consummated, followed by UAE with 19, Kuwait with 12, Qatar with 10, Oman with 7 and Saudi Arabia with one deal.
The UAE led in terms of transaction value at $20.14 billion (SR75.52 billion) or 72.4 percent of the total, while Qatar accounted for $2.61 billion or 9.4 percent, followed by Kuwait with an amount of $2.01 billion or 6.1 percent of the aggregate.
The merger between National Bank of Abu Dhabi and First Gulf Bank on April 1 resulted in the creation of the UAE’s biggest bank — First Abu Dhabi Bank — with total assets worth over Dh670 billion, and one of the largest in the Middle East and North Africa.
“The rationale for such consolidation are focused toward reducing costs, increase product offerings, diversification of risk and improve cost efficiencies. More importantly, the consolidations have been aimed to create a bigger bank to be able to compete in a challenging and highly competitive environment,” Al Masah said.
“Like any other sector, the size of the bank plays an important role within the banking sector. Firstly, it increases the bank’s ability to fund big-ticket projects, especially the ones which are critical and important for the government’s long-term strategic plans. Secondly, cost rationalization and synergies between the two institutions improves the profitability.”
“Thirdly, it will strengthen the sector’s ability to support the broader economy by improving the liquidity in the system. Lastly, the bigger banks will have the ability to tackle the slippages and absorb them with a large capital base, which reduces any systemic risk.”
Al Masah said that with around 50 lenders currently competing in the Gulf, and amidst high credit penetration and challenging economic outlook, government regulators should encourage mergers and acquisitions to improve the regional banking sector’s profitably and liquidity.
“The UAE, Bahrain and, to some extent, Oman would benefit from consolidation as many banks in these countries lack sufficient scale,” Al Masah said, while other Gulf nations only have a small number of local banks, which limits competition.
Major mergers and consolidation still elusive for Gulf banking sector
Major mergers and consolidation still elusive for Gulf banking sector
G7 countries to release oil reserves as IEA agrees to largest ever market intervention
- IEA recommends release of 400 million barrels
RIYADH: Germany, Japan and Austria will release part of their oil reserves after the International Energy Agency recommended the release of 400 million barrels of oil from stockpiles, the largest such move in IEA history.
In a statement, IEA Executive Director Fatih Birol said the flow of oil, gas and other commodities through the Strait of Hormuz have all but stopped, leading global energy supply to fall by around 20 percent.
Ahead of the confirmation of the move — a larger intervention than the 182.7 million barrels that were released in 2022 by in response to Russia’s invasion of Ukraine — several countries began setting out plans to bring their reserves into play as countries grapple with soaring crude prices amid the US-Israeli war with Iran.
Birol said: “I can now announce that IEA countries have decided to launch the largest ever release of emergency oil stocks in our agency's history.
“IEA countries will be making 400 million barrels of oil available to the market to offset the supply lost through the effective closure of the strait.
“This is a major action aiming to alleviate the immediate impacts of the disruption in markets.”
Germany’s Economy Minister Katherina Reiche confirmed on Wednesday her government plans to limit petrol price increases at filling stations to once a day and to introduce more stringent antitrust regulation of the sector.
She did not give an exact timing for those measures, but added that the US and Japan would be the largest contributors to the release of the oil reserves.
The US has not confirmed it would do so, but its Interior Secretary Doug Burgum told Fox News on Wednesday that “these are the kinds of moments that these reserves are used for.”
The announcements did not stop oil prices rising, with Brent crude up 3.26 percent to $90.66 a barrel at 4:29 p.m Saudi time, and West Texas Intermediate up 3.12 percent to $86.05. Both were some way below the $119 a barrel seen earlier in the week.
“The situation regarding oil supplies is tense, as the Strait of Hormuz is currently virtually impassable,” Germany’s Reiche said.
“We will comply with this request and contribute our share, because Germany stands behind the IEA’s most important principle: mutual solidarity,” Reiche said about the IEA’s request.
According to a statement by Reiche’s ministry, Germany will contribute 2.64 million tonnes of oil. This corresponds to 19.51 million barrels.
Reiche stressed there was no supply shortage in the country, which has a legally mandated reserve of oil and oil products intended to cover 90 days’ demand.
South Korea will release 22.46 million barrels of oil, which represents 5.6 percent of the total IEA ask, the country's industry ministry said.
“The government will consult with the IEA secretariat on details, such as the timing and amount, from the perspective of national interests in accordance with domestic conditions,” the ministry said in a statement.
The ministry said it would continue to coordinate closely with major countries in responding to high oil prices to minimise any domestic impact.
Austrian Economy Minister Wolfgang Hattmannsdorfer said his country was releasing part of the emergency oil reserve and extending the national strategic gas reserve, adding: “One thing is clear: in a crisis, there must be no crisis winners at the expense of commuters and businesses.”
Acting ahead of the IEA move, G7 member Japan announced plans to release 15 days' worth of private-sector oil reserves and one month's worth of state oil reserves.
“Rather than wait for formal IEA approval of a coordinated international reserve release, Japan will act first to ease global energy market supply and demand, releasing reserves as early as the 16th of this month,” Prime Minister Sanae Takaichi said in a broadcast statement.
Following a meeting with the IEA on Wednesday, G7 energy ministers said: “In principle, we support the implementation of proactive measures to address the situation, including the use of strategic reserves.”
All IEA member countries are required to keep 90 days’ worth of their nation’s oil use in reserve in case of global disruption.
