As a small country, we are well aware of the benefits that flow from economies of scale. Although there is a case to be made for remaining small and nimble, there are moments that call for the sheer heft offered by a substantial business structure and asset base. A perfect example of this dynamic is the proposed merger of two of the capital’s biggest banks, the National Bank of Abu Dhabi and First Gulf Bank.
Although NBAD and FGB are among the largest banks in the UAE, the merger would produce a new entity with assets of US$175 billion (Dh643bn), making it the largest bank in the Middle East. Sheikh Mohammed bin Zayed, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the Armed Forces, welcomed the move, saying it will boost local business and make the emirate more competitive on the international financial stage.
The merger was approved unanimously by both banks’ boards but still needs the support of the shareholders, who will be advised of a share swap. FGB shareholders will own 52 per cent of the new bank, which will be called National Bank of Abu Dhabi. In making their case, the two banks can portray the merger as offering more than simply the financial clout from the combined sum of their assets. Synergies between the banks – such as FGB’s better-established consumer banking portfolio and NBAD’s greater expertise with international networks – have been conservatively valued at Dh500 million by Arqaam Capital, a Dubai investment bank.
Efficiencies gained by merging the two banks’ administrations will also help the bottom line, but the primary benefit being envisioned is to have an entity that is capable of bestriding the global stage rather than just being a major player in the region. In times of temporary economic uncertainty, prompted by oil prices staying low for an unexpectedly long period, it is the right moment to make these kinds of adjustments. When the economy picks up again, the new National Bank of Abu Dhabi will be established and able to provide full financial support.
This kind of capacity building will help bed in the UAE’s reputation as the regional hub for businesses operating through the Middle East and beyond, providing a true economy of scale that will be a boon for businesses.
