Abu Dhabi banks seek to merge into fifth largest bank in Gulf

Abu Dhabi, the capital of the United Arab Emirates, is considering merging three of its national and private banks into a single banking group with assets worth $110 billion, part of the capital’s drive to strengthen state-controlled companies.

Both Abu Dhabi Commercial Bank and Union National Bank, two of the local national banks, are in advanced talks with Al Hilal Private Bank. The deal is expected to be announced in the last few days of this month because private talks between officials of the three banks are very positive, observers say.

The expected union among three banks in the UAE will result in the fifth largest bank in the Gulf Cooperation Council (GCC). This is a good time for the merger, according to analysts who believe the industry is suffering from lower profits due to lower government spending, slower economic growth and reduced asset quality.

ADCB’s market value is about $10 billion, while Union National Bank is worth $2.9 billion.

Consolidation among Abu Dhabi institutions has begun to mount as the emirate has started to manage its wealth following the fall in crude oil prices.

The largest UAE banks (National Bank of Abu Dhabi and First Gulf Bank) made a major merger last year as First Abu Dhabi Bank was established. An alliance between Mubadala Investment Company and the Abu Dhabi Investment Council was created last March, a “sovereign wealth fund” with assets of about $220 billion.

Senior analysts at the Abu Dhabi Securities Exchange (ADX) believe that the Fed’s positive merger will create competition for small banks and this will force them to merge as well. This move could help strengthen the competitive position of these small banks, especially ADCB.

The UAE has more than 9 million people and has nearly 50 banks, including local units such as Citigroup and HSBC Holdings.

Union National Bank shares rose 4.3%, while ADCB rose 0.6% on Monday. The Abu Dhabi Securities Exchange Index, which includes 13 banking and financial services companies, rose 26% this year, compared with 12% for the Abu Dhabi General Index.