Stronger together: The merger of two of the emirate’s biggest banks will create a global giant


After years of speculation as to the possibility of mergers in the UAE’s crowded banking sector, details emerged in 2016 of a deal of historic proportions. It was announced in July that Abu Dhabi’s flagship banking institution, National Bank of Abu Dhabi (NBAD), would join forces with First Gulf Bank (FGB).

The combining of the two banks has been described by the participants as a “merger of equals”, with the name chosen for the new bank to be First Abu Dhabi Bank (FAB). According to the deal, a share swap agreement in the first quarter of 2017 would see FGB shareholders receive 1.254 new NBAD shares for every FGB share they held, a ratio that would grant them 52% of the combined bank.

Further details quickly followed. By October 2016 the management structure of the new bank was revealed: NBAD chief executive Alex Thursby, who had directed the bank’s growth strategy since the year 2013, was not to play a role in the new institution. Former FGB board member and managing director Abdulhamid M Saeed will take over the lead role, with NBAD CFO James Burdett keeping the same position at the merged institution.


In December 2016 NBAD set about housekeeping in preparation for the melding of the banks’ balance sheets, securing a $2bn loan in order to refinance existing bilateral debt and provide new funding. The shareholders gave their approval at a general assembly meeting held in December. With the permission of the Central Bank of the UAE (CBUAE) already attained, only the formality of obtaining the approval of international regulators and the Securities and Commodities Authority remained. This was completed in March 2017 and the last day of trading FGB shares was March 30. The merger as a whole was legally completed on April 1 and FAB began trading on the Abu Dhabi Securities Exchange shortly after.

The shake-up of the shareholder base will result in a new ownership structure. Key stakeholders include the Abu Dhabi Investment Council, which is the investment arm of the government of Abu Dhabi and retains a 33.2% interest, and Mubadala Investment Company, which is responsible for a large number and variety of national developments, including the new Abu Dhabi Global Market, which owns 3.7% of the merged institution.

National Champion

The rationale behind the decision to merge two of Abu Dhabi’s most prominent financial institutions is persuasive. The merger creates not only the largest bank in the UAE, with a balance sheet capacious enough to play a key role in the federation’s economic development, but also a regional leader: the combined assets of the institution run to Dh670bn ($182.4bn), outstripping the national lenders of Saudi Arabia, Qatar, Kuwait and Oman. Its market capitalisation of Dh111bn ($30.2bn) puts in a category of global giants such as the Development Bank of Singapore ($30bn), Standard Chartered ($25bn) and Malaysia’s largest financial services group, Maybank ($20bn).

The international footprints of NBAD and FGB give the new entity a global reach. Both banks have operations in a number of significant financial markets such as Hong Kong, Singapore, Geneva, London and Washington DC – a total of 19 countries in both the eastern and western hemispheres.

The two banks are also a good match in terms of balance sheet profiles. NBAD, despite being the largest bank in Abu Dhabi for years in terms of assets, was a middle-ranking institution in the consumer segment. FGB, on the other hand, has built up its business on the back of a substantial focus on retail, and in 2016 possessed the UAE’s largest consumer loan book, at Dh59bn ($16.1bn).

FAB will bring the wholesale and corporate expertise of NBAD and the consumer banking strengths of FGB into a single institution, granting the new entity a broad array of growth options and a more balanced loan mix. The combined loan portfolio of NBAD and FGB will amount to Dh364bn ($99.1bn), around 45% of which will be corporate, 26% consumer, 22% government lending and 7% loans to financial institutions.


The merger gives the UAE a national champion capable of supporting growth both domestically and in the region, and therefore is an event of political as well as economic importance.

The effective doubling of the two banks’ capital bases to reach a total of Dh10.9bn ($3bn) can be leveraged in order to serve UAE corporates with international ambitions as well as support international companies operating in the country.

In this sense, the new institution could help to serve the long-term strategic goals and ambitions of both Abu Dhabi and the wider federation. “This is a transformational moment for Abu Dhabi, the region and beyond, and is an extension of the legacy of both banks, which spans over a period of 50 years,” Saeed said during a speech at the launch of FAB in April 2017. “As one stronger and larger bank, we will have the financial strength, expertise and international connectivity to put our customers first through an expanded range of products, services and solutions, drive strong profitability and deliver significant value for shareholders.”

A Warm Welcome

The merger has also been warmly welcomed by investors: when the discussions between the two parties became public in 2016 a stock rally saw the pair’s combined market value expand from Dh94.6bn ($25.8bn) to Dh112bn ($30.5bn), according to Bloomberg. This enthusiasm is borne out by the potential value creation, which can be derived from operational savings and revenue synergies derived from the consolidation of the common business units, systems integration and the closure of overlapping branches. Indeed, after an initial one-off integration cost of Dh1.1bn ($299.5m), it is estimated that cost synergies will reach Dh1bn ($272.3m) in the period 2018-21.

The potential savings, together with the prospect of a stronger franchise arising from the combined strengths of the banks, has been noted by analysts. “We are positive on the merger because it will definitely lead to revenue and cost synergies,” Sachin Mohindra, a portfolio manager at Abu Dhabi-based asset manager Invest AD, told local press in December 2016, “Both the franchises bring in some specific value. It will improve access to liquidity. The cost of funds for NBAD is fairly low so that will benefit the combined entity. FGB brings in a very strong franchise in terms of the retail banking network.”

Although welcomed by the regulator, the merger will occupy much of its attention over the coming year: “The merger or takeover of a financial institution has unique challenges, particularly if that institution has a large depositor base,” Khalifa Mohammed Al Kindi, chairman of the CBUAE, told OBG. “The central bank must ensure that any resulting new ownership structure, governance process, product offering and prudential safeguard are suitable and robust enough to solidify intermediation capacity, and that the merged institution does not undermine the safety and soundness of the financial system, while at the same time protecting consumers.”

Looking Ahead

For many, however, the larger question is whether the deal heralds a new era of consolidation in the UAE’s fragmented banking sector. This question has become more salient in recent years due to stiffening competition and the many regulatory changes in the pipeline as the UAE continues to align itself with global regulatory frameworks. The domestic banking sector is faced with implementing new international financial reporting standards in 2017, and just a year later it will be compelled to comply with the more stringent capital and liquidity requirements established by Basel III.

While the UAE’s prudentially regulated banking industry is well positioned to accommodate the changes, some of the smaller institutions may feel that a merger is a useful way of strengthening their balance sheet over the coming years.

For now, though, it is the domestic giants that appear to be leading this nascent consolidation trend, as for them mergers present the opportunity to cut costs and increase market share. Following the merger of NBAD and FGB, investors and analysts will watch the remaining major Abu Dhabi institutions closely for hints of new consolidation efforts. Abu Dhabi’s two Islamic banks, for example, are potential candidates for consolidation. A merger of the emirate’s only two stand-alone sharia-compliant banks would result in a combined balance sheet somewhere in the region of Dh160bn ($43.6bn), making it a significant player in the region.

While the hard work of negotiation and implementation lies ahead, the merger of NBAD and FGB shows that Abu Dhabi is leading the way in the long-anticipated consolidation of the banking sector in the UAE.