Abu Dhabi said to weigh 3-way merger to create banking giant

By BLOOMBERG

DUBAI • Abu Dhabi is exploring a potential merger between three of its banks to create a lender with about US$110 billion (RM454.3 billion) of assets as the oil-rich emirate moves ahead with the consolidation of state-controlled companies.

Abu Dhabi Commercial Bank PJSC (ADCB) and Union National Bank PJSC (UNB), which are both listed locally, are in talks to combine with privately-held Al Hilal Bank, according to people with knowledge of matter. If successful, a deal could be announced as early as this month, two of the people said, asking not to be identified because the talks are private.

The potential tie-up would create the Gulf Cooperation Council’s fifth-largest bank and comes as the industry battles falling profits because of lower government spending, slower economic growth and a decline in asset quality.

ADCB has a market value of about US$10 billion, while UNB’s is US$2.9 billion.

Consolidation among Abu Dhabi institutions has been picking up as the sheikhdom manages its wealth following the slump in crude prices. The emirate’s two largest lenders — National Bank of Abu Dhabi and First Gulf Bank — completed a merger last year to create First Abu Dhabi Bank PJSC (FAB). A tie-up between Mubadala Investment Co and the Abu Dhabi Investment Council (ADIC) in March created a sovereign wealth fund with about US$220 billion of assets.

Feeling Competition
“As the merger of FAB has played out positively, the smaller banks are feeling the competition now, forcing them to consolidate and stand up against the mega bank,” said Joice Mathew, the head of equity research at United Securities in Muscat.

“This move might help in enhancing the competitive positioning of these smaller banks, especially ADCB.”

The United Arab Emirates is home to more than nine million people and has almost 50 banks, including the local units of Citigroup Inc and HSBC Holdings plc. UNB shares rose 4.3%, while ADCB advanced 0.6% yesterday.

The Abu Dhabi Securities Market Banks Index, which tracks 13 banking and financial services companies, has risen 26% this year, compared to a 12% gain for Abu Dhabi’s general index.

Mubadala, which holds a 62.5% stake in ADCB and 50% of UNB through ADIC, declined to comment. ADCB also declined to comment. Al Hilal Bank and UNB didn’t immediately respond to requests for comment. ADIC also owns all of Al Hilal Bank.

The common ownership should make a potential merger “seamless”, Mathew said. “I see synergy opportunities in the cost of funding, efficient capital deployment, and stronger balance sheet to stand up against competition in the wider regional perspective.”