NBAD-FGB Merger to Create larger bank

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National Bank of Abu Dhabi (NBAD) and First Gulf Bank (FGB) have started talks on the merger, Istathmir confirms. If the move is materialised, the new entity will be one of the largest banks in the Middle East and Africa.

The merger will mark the start of a wave of consolidation in the United Arab Emirates banking sector,

According to the statements issued on the Abu Dhabi Securities Exchange (ADX), each bank has formed a Working Group made up of senior executive management to review the commercial potential along with any legal and structural aspects of a merger or combination. Both the banks are listed on the ADX.

Once the review is completed, the groups will make their recommendations to their respective board of directors.

Due diligence for the merger can take six months and full integration another 12 to 18 months,  Middle East’s leading investment bank EFG Hermes said in a research note.

Investors have welcomed the merger move, pushing NBAD and FGB shares up following the announcement made recently.

NBAD, with a market value of about $11.3 billion, is 69% owned by sovereign wealth fund Abu Dhabi Investment Council. State-owned investment fund Mubadala Development is the biggest shareholder in FGB with a 7% stake. The bank’s market value is about $14.4 billion, according to data compiled by Bloomberg.

The NBAD-FGB merger will create the Middle East’s largest lender by assets, around Dh 627 billion ($171 billion), according to figures they gave for the first quarter of 2016.  This compares to Qatar National Bank’s almost $148 billion of assets reported last year.

A larger bank will help Abu Dhabi’s aspiration to become a major financial center, said a government source. The emirate is launching a financial free zone, Abu Dhabi Global Market, to attract foreign investment.

The merger will lead to cost savings of almost 30%, according to a banker who oversaw the creation of Emirates NBD.

NBAD, known for its high wholesale banking operations, reported a 10.7% year-on-year fall in net profit to Dh1.27 billion in the first quarter of this years, while FGB, which is strong in consumer lending, reported a 6% fall to Dh1.33 billion.

One of the biggest mergers in the local market took place in 2007 when Emirates Bank International and National Bank of Dubai merged to create Emirates NBD, Dubai’s largest bank.

In 2009, two other Dubai-based banks, Dubai Bank and Emirates Islamic Bank (EIB) merged into one and were later rebranded as Emirates Islamic. The combined entity is owned by Emirates NBD Group.

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