Emirates NBD to buy Turkish lender DenizBank from Sberbank for $3.2bn

Dubai-based bank is expanding its remit outside its overbanked home market

Emirates NBD started strategic rights issue to raise up to Dh6.45 billion to support  its future growth. Chris Whiteoak / The National

Emirates NBD agreed to buy Turkish lender DenizBank from Russia’s Sberbank for $3.2bn, its biggest acquisition, as Dubai's biggest lender expands its remit beyond the saturated UAE market.

The Dubai-listed lender will buy 99.9 per cent of the Turkish bank, which is the fifth largest private bank in the country, Emirates NBD said in a statement on Tuesday.

“Through this transaction, Emirates NBD will establish itself as a leading bank in the Middle East, North Africa and Turkey region and achieve meaningful diversification of its operations, both in new countries and in a broad range of business segments,” said Hesham Al Qassim, Emirates NBD vice chairman and managing director.

The deal, which is subject to regulatory approval in Turkey, Russia, the UAE and other relevant jurisdictions, is expected to close in 2018.

Emirates NBD, which has operations in Egypt, Saudi Arabia, India, Singapore, the United Kingdom, and representative offices in China and Indonesia, is expanding its footprint to boost revenue amid limited opportunities for growth in the UAE market, where more than 50 lenders operate.

Shares of Emirates NBD surged more than 8 per cent on Tuesday morning, the most in more than two months, according to Bloomberg data, while DenizBank shares plunged 20 per cent on the announcement of the agreement.

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“The transaction represents a significant milestone for Emirates NBD and is expected to be accretive to shareholders in the first year," said Shayne Nelson, Group chief executive of Emirates NBD.

The Turkish deal is the second major acquisition for Emirates NBD since buying in 2013 BNP Paribas’s Egyptian unit in a $500 million transaction.

The price tag for Denizbank is reasonable given the growth potential in Turkey, one of the largest banking markets in emerging Europe, according to analysts.

"Turkey has a favourable economy and offers strong growth potential. If you look at Denizbank it continues to grow its lending book by circa 21 per cent over the past 2 years and a much strong earnings growth," said Chiradeep Ghosh, an analyst with Bahrain's Sico investment bank. "The bank would definitely get a top-line boost (around 35 per cent), post the acquisition."

With only 13 per cent of the bank's balance sheet coming from international operations, the acquisition will help boost that level to 33 per cent, which is a positive development for the bank, he added.

The deal is expected to be followed by Emirates NBD raising the foreign ownership limit to 20 per cent from 5 per cent, said Shabbir Malik, a bank analyst at Egyptian investment bank EFG Hermes.

"ENBD is primarily a single-country bank as its presence in Egypt and KSA is fairly small," said Mr Malik. "By acquiring Deniz, ENBD can diversify its credit risk as it has concentrated exposure to Dubai government– 46 per cent of loans and 234 per cent of capital."

Emirates NBD joins other Arabian Gulf lenders, including those in Kuwait and Saudi Arabia, which are expanding into Turkey due to limited opportunities for growth in their home markets. Saudi Arabia's National Commercial Bank acquired 60 percent of Turkiye Finans Katilim Bankasi for $1.08bn in 2007 and Kuwait Finance House set up a unit in the country in 1989.