The Gulf banking sector has witnessed an increase in mergers and acquisitions (M&A) in recent years, as lenders continue to deal with the economic headwinds associated with the Covid-19 pandemic. At the outset of the pandemic, in the first quarter of 2020, it was anticipated that the economic slowdown and the associated fall in oil prices would accelerate the M&A trend among banks in the region, with most institutions expecting constrained profitability despite performing well on risk indicators.
Pandemic Effect
A report published by ratings agency Standard & Poor’s (S&P) in March 2021 noted that the long-lasting adverse effects of the 2020 shock were likely to be felt particularly keenly by banks in the UAE, Oman and Bahrain, and less so in Qatar and Saudi Arabia. The report postulated that a second wave of M&A could sweep further across the region as the full economic impacts of the pandemic became apparent as many institutions sought to strengthen their resilience against future crises.
This would not be the first wave of consolidation in the face of economic pressure in the region. The so-called second wave follows an earlier series of M&A deals – seen most prominently in the UAE – triggered by the 2014 decline in oil prices.
Consolidation continued in the years leading up to the pandemic. A particularly emblematic merger came in 2019, marking the MENA region’s largest tie-up to date, between Abu Dhabi Commercial Bank, Union National Bank and the Abu Dhabi-headquartered Islamic finance institution Al Hilal Bank. The merged entity became the UAE’s third-largest bank, with an estimated $114.4bn in assets at the time.
Major Deals
Qatar saw significant M&A activity in the immediate aftermath of the outbreak of Covid-19. Islamic Bank Masraf Al Rayan announced a potential merger with Al Khaliji Bank in June 2020. In January 2021 the Qatar Financial Markets Authority – which regulates and supervises the country’s financial markets – confirmed that it had approved the tie-up. The deal, which was completed in November of that year, created Qatar’s second-largest lender and one of the region’s largest sharia-compliant groups. It had around QR192bn ($50bn) in assets at the time of the merger. The new entity operates under Masraf Al Rayan’s name, and the integration process was set to be complete in 2022. The merger was considered an important milestone for the Qatari banking sector, as it reflected the market’s growing maturity and its ability to facilitate large-scale deals and investment.
After two decades without any bank mergers, Saudi Arabia has also seen two major developments in recent years. Prior to the pandemic, in 2018 SABB and Alawwal Bank announced their intention to merge. The deal was finalised in March 2021, creating Saudi Arabia’s third-biggest bank by assets.
Even more significant was the establishment of Saudi National Bank (SNB), which began operations on April 1, 2021. It is the largest financial institution in Saudi Arabia and a major regional player. The entity was formed out of the merger of two leading institutions, after National Commercial Bank combined with Samba Financial Group in 2020 in a $15bn agreement. With more than $239bn in total assets and $34bn in shareholder equity, SNB has strong liquidity and capital buffers.
Consolidation is also becoming increasingly common in Oman. In December 2019 Oman Arabic Bank proposed a merger with Alizz Islamic Bank, which was finalised in July 2020. Additionally, in January 2022 the Central Bank of Oman gave its approval for conventional lender Sohar International Bank (SIB) and sharia-compliant lender Bank Nizwa to begin due diligence on a potential merger. In July 2022 SIB signed a memorandum of understanding with HSBC Bank Oman, in which all the assets and liabilities of HSBC Bank Oman will be transferred to SIB.
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