The over-banked UAE sector will benefit from the potential merger between three Abu Dhabi-based banks, according to Moody’s Investors Service.
If approved by shareholders and regulators, the proposed merger would be credit positive for UAE banks, Moody’s said in a statement on 10 September.
It said the merger will “increase banks’ pricing power, reduce pressure on their funding cost, and increase their ability to meet sizeable investments.”
Abu Dhabi Commercial Bank (ADCB), whose majority shares is owned by the government, and Union National Bank confirmed on 4 September that they are holding “exploratory talks” regarding a potential merger with two local banks.
In a filing with the Abu Dhabi Securities Market, both banks said “discussions are at very preliminary stage and may not result in a transaction.”
ADCB also confirmed holding similar and separate discussions with the shareholders of Al Hilal Bank.
Two of Abu Dhabi’s top banks – First Gulf Bank and National Bank of Abu Dhabi (NBAD) – merged last year to create First Abu Dhabi Bank (FAB). The merged bank had total assets of approximately $175bn.
Thomson Reuters estimates the three-way merger could result in combined assets worth $113bn, making it UAE’s third largest lender next to First Abu Dhabi Bank and Dubai-based Emirates NBD.
The UAE currently has 60 banks serving a population of roughly 9.5 million. Moody’s said this has fueled strong competition especially over the past few years as lending opportunities decreased following a decline in economic and credit growth amid lower oil prices.
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