Sunday, Nov 22, 2015

Dubai: Banking and financial services sectors in the GCC are actively seeking opportunities beyond their borders triggering a number of cross border mergers and acquisition deals in recent years.

Domestic markets focus of GCC banks has limited the scope for expanding their business. While this has benefited local banks in increasing their banking penetrations in the economies that they are based in significantly, it did take away from the potential to grow outside their boarders and broaden their geographic reach. This is an important point particularly as domestic markets will have limits to their potential.

Expanding beyond their borders is one channel for GCC banks to add value to their business models.

“Gulf banks straddle a region ripe with opportunity and are looking both within and outside their borders to build synergies. As markets in the GCC region seed healthy opportunities for regional banks to grow and mature, attention is beginning to turn to the wider Mena region, where clear synergies exist and opportunities for business expansion are strong. However stability will be key a factor in determining appetite for GCC banking investments in the wider Mena region,” said Shady Shaher, Head of Macro Strategy at Emirates NBD.

Robust

For the GCC banking sector, opportunities both in the region and beyond look strong. Firstly credit demand in the region is likely to remain robust, especially over the medium term horizon. Government spending to meet infrastructure needs and diversification aspirations has been one of the key growth drivers as it boosted demand for needed financial products and credit solutions. “While we expect moderation in the project pipeline over the medium term on the back of lower oil prices, this will come down from very elevated levels that were probably unsustainable over the long run. In other words we see a more sustainable project spending pipeline going forward, and the more cautious stance by governments in terms of spending will reduce the risks of shocks,” said Shaher.

Potential moderation of growth opportunities are pushing banks to invest in Mena markets and beyond. Investing in Africa is rising, and comes on the back of growing trade and investment links between GCC and Africa. Trade between the two regions has grown from almost $7 billion in 2004 to $35 billion in 2014, a fivefold increase. A report by E&Y shows that GCC states share of FDI to Africa was almost 9.1 per cent of the total in 2014. Furthermore there has been a notable increase in private equity investors in Africa.

Domestic consolidation

The GCC banking sector has seen a number of key deals in the M&A space this year. They range from acquisition in the wider region to domestic consolidation. The most recent deal was Al Ahli Bank of Kuwait’s acquisition of 98.5 per cent of Piraeus Bank Egypt on November 10th 2015. In Oman, Bank Sohar and Bank Dhofar have recently appointed advisers for a proposed merger. In April the Commercial Bank of Dubai acquired Dh3 billion corporate loan portfolio from Royal Bank of Scotland’s (RBS) UAE business. Dubai Islamic Bank is planning to start operations of a new bank in Kenya by the end of this year, the new bank Dubai Islamic Bank Kenya being a “greenfield” operation, with a 70 per cent holding by DIB and 30 per cent by local shareholders.

By Babu Das Augustine Banking Editor

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