HARDLY a week seems to go by in the global banking industry without news of a merger, as the world's bigger banks try to muscle their way onto the top table of financial services. With the forces of globalisation filtering through to the developing world, this phase of banking consolidation is finding an echo in the Arab countries. All the Arab bankers who have said for years that the industry is overbanked are starting to see their wishes answered: mergers and acquisitions have come onto the agenda this year in Saudi Arabia, Kuwait, Oman, Lebanon, Jordan, Tunisia and Egypt. However, compared to other regions the pace is still slow.

This year has also seen a flowering of new banks, mostly investment banks in the Gulf Arab states. In part, this is due to growing interest in Islamic banking and a search within that market for longer-dated, higher-yielding assets (see page 12). The rapid growth of stock markets in the Arab world in the last two years has also created a demand for intermediaries who can link borrowers and investors. The latest such venture, which has already cut its teeth on a major share offering, is a merchant bank created by Dubai's Emirates Bank Group (see page 10).

There are several reasons why banks across the Arab world are starting to swallow up or join forces with their competitors. Perhaps the most significant is the globalisation of the industry and the awareness of governments and bankers alike that, in an era of opening markets, a few well-capitalised banks pack more punch than a clutch of weak ones. In some countries, there are specific reasons for consolidation. In Lebanon for example, many banks were confined to particular regions of the fragmented country during 15 years of civil war. Peace and economic reconstruction have removed some of the political barriers between the different regions, and some small banks cannot cope in the more competitive market.

Privatisation has also revitalised banks. Kuwait's Burgan Bank has effectively been taken over by a local investment group, while Lebanon's Credit Libanais, formerly owned by the Banque du Liban (central bank), has been bought by Gulf Arab investors. At the same time, the banks' access to capital is improving as local stock markets are developing capacity and foreign investors queue up to buy global depositary receipts (GDRs) from the Middle East. A bank in Lebanon or Oman that needs finance to acquire another bank can raise funds affordably through the equity or loan market or, until Asia's financial problems this summer, through a bond issue.

Here is a summary of recent mergers and acquisitions:

Saudi Arabia. United Saudi Commercial Bank (USCB) and Saudi Cairo Bank merged in September, creating a bank with capital of $653 million, the third largest in the country. The driving force in the merger was Saudi Arabia's best known investor, Prince Alwaleed bin Talal bin Abdulaziz, who was a shareholder in both banks. Moody's Investors Service says there are synergies between USCB, which mainly lends to companies, and the predominantly retail business of Saudi Cairo. The agency adds that there are question marks over the length of time it will take to integrate the two banks.

Lebanon. Byblos Bank and Banque Beyrouth pour le Commerce (BBC) have decided to merge, local banking sources told MEED in late November. Byblos Bank, one of Beirut's larger banks, will raise $90 million from its shareholders to buy the smaller BBC with a mixture of cash and its own shares. The new institution will be called Byblos Bank. The deal has yet to be approved by the Banque du Liban (central bank). There is a synergy in the merger: Byblos' 33 branches are mostly in east Beirut and north Lebanon, while BBC has 19 branches in west Beirut and the south.

Banque Audi acquired Credit Commercial du Moyen Orient, a medium-sized bank, for about $50 million, according to Beirut banking sources. The take-over, in July, came on the heels of Banque Audi's failure to buy Credit Libanais, the country's 10th largest bank. Audi was pipped to the post by a group of Arab investors led by Khaled bin Mahfouz, the driving force behind Saudi Arabia's National Commercial Bank. The Gulf investors paid $163 million for Credit Libanais.

Another Lebanese take-over was the purchase of the small Banque Geagea for about $4.5 million by Societe Generale Libano Europeene de Banque, an affiliate of France's Societe Generale.

Kuwait. The local Kuwait Investment Projects Company (KIPCO) acquired effective control of Burgan Bank by buying shares sold by the government through its privatisation programme. KIPCO owns United Gulf Bank, an investment bank based in Bahrain, and its 43 per cent stake in Burgan Bank gives it an indirect interest in another Bahraini offshore bank, Bahrain Middle East Bank.

Oman. Bank of Bahrain & Kuwait is expected to sell its interest in Bank of Oman, Bahrain & Kuwait (BOBK) for about $80 million to two Omani investment houses, which plan to merge it with Commercial Bank of Oman (Combank), itself the product of a merger with a small Omani bank earlier this year. The new bank would be capitalised at $125.5 million, the second largest in the country in capital terms.

Jordan. Arab Bank signed an agreement in October with Jordan's central bank to take over the failed Amman Bank for Investments and turn it into an Islamic bank.

Tunisia. United Gulf Bank, which is owned by Kuwait's KIPCO, is understood to be close to buying a large minority shareholding in Tunis International Bank.

Egypt. The battle continues over the two remaining joint-venture banks, the Bank of Commerce & Development (Tigariyoun) and Misr Iran Development Bank (MIDB). Neither is a particularly attractive investment - Tigariyoun is known to be carrying $9 million in retained losses - but the central bank is not giving out new licences, so buying a local bank is the only way into the market for a foreign bank.

Both Arab Banking Corporation (ABC) and France's Credit Agricole-Indosuez have made offers this year to buy Tigariyoun. It seemed for a while that ABC had edged out the French giant, but reports emerged during November that ABC's offer had been rejected. The Bahrain-based bank says it is still in the running. Local press reports in early December suggested that a Kuwaiti bank has also become interested in Tigariyoun, while an unnamed French bank is said to be taking a look at MIDB. As MEED went to press, it was not clear whether Indosuez had switched targets.