Three Qatari banks in talks for potential merger

The merger, should it go through, would create the second-largest bank in the country, and the largest Islamic bank.

Barwa Bank, majority-owned by the Qatari government, is in talks with Masraf Al Rayan and International Bank of Qatar on merging into a single banking entity – which would create the country's second-largest bank. Fadi Al Assaad / ReutersShow less

Masraf Al Rayan stock surged on Tuesday after it emerged that the Qatari lender was in three-way merger talks with Barwa Bank and International Bank of Qatar (IBQ).

The trio said on Monday evening they had started initial merger talks to create what would become the country’s largest Sharia-compliant lender and its second-largest overall.

The new entity’s combined asset base of 163 billion Qatari riyals (Dh164.41bn) would place it ahead of Qatar Islamic Bank, currently the country’s largest Islamic bank with 153bn riyals of assets, but some way behind overall leader Qatar National Bank, whose total assets stand at 713bn riyals.

The talks come after Qatar said it would continue to cut government spending next year and run a second consecutive budget deficit, even as higher oil prices are predicted to result in an up tick in revenue.

The proposed merger of the three lenders would create “a larger and stronger financial institution with a solid financial position and liquidity to support Qatar’s economic growth and to finance development initiatives in line with Qatar Vision 2030”, the banks said in a joint statement on the Qatari stock exchange on Monday. The banks said the new entity would be a Sharia-compliant lender.

Masraf Al Rayyan and Barwa are Islamic lenders, while IBQ is a conventional bank. Qatari banking regulations do not permit banks to offer Islamic and conventional banking services simultaneously.

“Consolidation in the Qatar banking sector makes sense in our view, with 18 banks operating in Qatar, despite its small population of just 2.8 million,” said Elena Sanchez-Cabezudo, the director of equity research at EFG Hermes.

“We believe that cost synergies between the three banks could be limited and there is going to be little branch overlap as IBQ and Barwa Bank have very small branch networks.” Ms Sanchez-Cabezudo said that the new entity would have a more diversified funding base, with Masraf Al Rayyan hitherto relying heavily on public sector deposits.

Shares in Masraf Al Rayan, the heaviest weighted Qatari constituent in MSCI’s Emerging Market Index, soared on the merger talk news, rising by about as much as 7 per cent in early trading to hit their highest level since September.

The stock closed about 6 per cent higher.

Talks of the banking tie-up comes days after Qatar announced the merger of liquefied natural gas giants Qatargas and RasGas, as the government looks to streamline costs in the wake of lower oil revenues. The merger process between the two producers is expected to be completed within about 12 months.

Several banks across the Arabian Gulf have discussed mergers in the past 12 months, as lower oil prices choke liquidity, putting pressure on bottom lines. However, such efforts have had only partial success thus far.

Abu Dhabi-based banking majors FGB and NBAD earlier this month secured shareholder approval for a merger, first unveiled in June, in a move that will create the Middle East’s largest bank by assets.

In Oman, Bank Dhofar and Bank Sohar held merger talks earlier in the year. The talks collapsed in October.

The last attempt at consolidation in Qatar’s banking sector – a proposed merger between IBQ and Al Khalij Commercial Bank – ended in failure in June 2011 after more than a year of talks.

Follow The National's Business section on Twitter