Low Oil Prices Behind Historic GCC Bank Deals

Falling oil prices are squeezing GCC economies.

Faced with lower oil prices and shrinking margins, Gulf Cooperation Council (GCC) lenders are looking to consolidate their revenues, reduce operating costs and minimize pressure for funding via mergers. In early October, Saudi Arabia’s Alawwal Bank announced its merger with Saudi British Bank (SAAB), which is 40% owned by HSBC. Together, they will form the county’s third-largest bank, with more than $70 billion in assets. The deal, which is valued at $5 billion, is the first of its kind in the kingdom and is expected to close in the first half of 2019.

This summer, Bank Dhofar and National Bank of Oman announced they wouldcreate the country’s second-largest bank, with $20 billion in combined assets.

In the United Arab Emirates, talks are ongoing between Abu Dhabi Commercial Bank, Union National Bank and Al Hilal Bank. If the three-way merger goes through, it would create the country’s third largest bank and the GCC’s fifth-largest lender, with more than $110 billion in total assets.

Merger talks are also underway between Bahrain’s Ahli United Bank and Kuwait Finance House to create the Gulf’s sixth-largest bank, with $92 billion in combined assets.

This new round of bank mergers comes only a year after National Bank of Abu Dhabi and First Gulf Bank came together to create the $183 billion First Abu Dhabi Bank.

Bank competition is particularly fierce in the UAE, where more than 50 banks serve a population of nine million.

In 2007, National Bank of Dubai and Emirates Bank International merged to create the country’s largest bank by assets: Emirates NBD. A similar strategy brought together Dubai Bank and Emirates Islamic Bank in 2012.

According to international law firm Baker McKenzie, the aggregated value of all Middle East North Africa mergers-and-acquisitions activity rose by 62% during the first half of 2018.