Abu Dhabi bank shares rise on expectation of more mergers to come

Bloomberg News reported that Abu Dhabi Commercial Bank and Union National Bank may join forces as well as a separate combination between Abu Dhabi Islamic Bank and Al Hilal Bank, sparking a rally in their shares.

National Bank of Abu Dhabi (NBAD) and FGB, which is set to create the largest bank in the Middle East. Mona Al Marzooqi / The National

Abu Dhabi banking shares rallied today, pushing benchmark indexes higher following a media report that more mergers may be on the cards for local lenders.

In the wake of the planned combination of National Bank of Abu Dhabi (NBAD) and FGB, which is set to create the largest bank in the Middle East, it was reported by Bloomberg News on Tuesday that Abu Dhabi Commercial Bank and Union National Bank may join forces as well as a separate combination between Abu Dhabi Islamic Bank and Al Hilal Bank, another Sharia-compliant lender. The report cited four unnamed people familiar with the matter and so far there has been no official confirmation.

The ADSMI Index, a measure of Abu Dhabi-listed companies, jumped 2.6 per cent. Shares of Union National Bank, which would be the junior partner in a merger with ADCB, leapt 12.2 per cent, while ADCB stock advanced 5.8 per cent. Shares of Abu Dhabi Islamic Bank, which are not open to foreign investors, increased 4.7 per cent.

“We believe these mergers are likely to happen given the sector’s subdued medium-term revenue growth outlook and potential cost synergies, which would support operating profit growth,” said Shabbir Malik, a Dubai-based analyst at the Egyptian investment bank EFG Hermes.

“These potential mergers would also help ease competitive pressure by reducing the number of banks.”

This is not the first time there has been speculation that other banks may follow the lead of NBAD and FGB, especially as profitability for the sector has been on the wane amid the biggest drop in oil prices since the financial crash of 2008.

The UAE Central Bank governor Mubarak Al Mansouri declined to comment on merger speculation when asked by reporters at a conference on Tuesday but said that measures to help smaller banks would be welcome whatever form they take.

“I am for strengthening the banking sector, so I am with introducing measures to help smaller banks improve their fin­ancial positions, their ratios,” he said. “I am with that. Whether it is through a merger or not, that is a business decision.”

NBAD, the biggest bank by assets in Abu Dhabi, and FGB, its closest competitor in the emirate, last month invited shareholders to separate general assembly meetings on December 7 to approve their merger.

In July, the banks said their boards had unanimously voted to recommend to their shareholders a merger of the two Abu Dhabi-listed banks, in what would create a lender with US$175bn in assets and come with many cost-cutting advantages.

Saving money has been a key concern for lenders over the past two years, during which time they have been hit by dwindling deposits as governments scrambled to find cash as a first line of defence to plug budget deficits. That has made lending more difficult and riskier as defaults increased.

Abdul Aziz Al Ghurair, the head of the UAE Banks Federation, said two weeks ago that banking sector profits may fall between 10 and 20 per cent this year versus 2015 as a slowing economy takes its toll on loan growth.

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