Dubai, United Arab Emirates (CNN) – Abu Dhabi Commercial Bank, National Union and Al Hilal Bank have announced their intention to merge and form a new banking group that will contribute actively to the national economy.
The experts praised CNN's comments in Arabic and underlined that the strength of the country's economic entities supported the private sector, reduced default rates and increased international ratings for banks.
The new banking merger will be the third largest banking entity in the UAE with assets of nearly 420 billion dirhams ($ 114 billion), according to a statement posted on the Abu Dhabi Financial Market website.
The Abu Dhabi Commercial Bank (ADCB) and the Abu Dhabi National Bank (NBAD) are listed in the Abu Dhabi Financial Market (ADX). The new entity is expected to represent 21% of the UAE's retail loans and the Abu Dhabi Government will have 60.2% through the Abu Dhabi Investment Council.
The merger approves Moody's vision for regional banks
Earlier this month, Moody recommended Gulf banks to drive mergers and acquisitions among them, especially as oil prices fluctuated, leading to a slowdown in country economies and greater competition between the banks that served small groups of the population.
Moody's believes that the slowdown in the economy is one of the main factors in the banking union. The growth of the banking sector depends to a large extent on the growth of GDP and on public spending in these economies.
The impact of the fall in oil prices in the period from 2014 to 2016 negatively in the government budgets and the reduction of the pace of economic growth in the region and the increase in competition for deposits and borrowers and , therefore, the benefits of the banks of the Gulf fell.
Experts list pros
The experts agreed in their comments on CNN in Arabic with the opinion of Moody's: "Mergers will strengthen the presence of Arab Emirates banks on a local and global scale," said the " economist Najib Al Shamsi. "Global institutions only recognize that strong entities and local banks have a high level of liquidity, in addition to the great confidence of the UAE.
"The number of banks is greater than the needs of the citizens of the UAE," said Al Shamsi. "ATMs will benefit citizens, expats and tourists." The strength of the banks will increase their capacity to finance national projects and support the private sector.
"Consolidation strengthens banks, promotes long-term stability, provides operating expenses, strengthens creditworthiness, and increases in banks are pushing them, especially small ones as competition intensifies" , said Hamoud Al Yassi, this can cause them to accept bad loans.
How will it merge?
The merger between Abu Dhabi Commercial and Union National will be through the issuance of new shares of Abu Dhabi Commercial to the shareholders of the National Union with a rate of approximately 0.6 shares in the trading of Each action of the National Union and, therefore, the Commercial Bank of Abu Dhabi exports more than 1.6 trillion shares.
The Bank of Abu Dhabi and Union National Bank will acquire Bank Al Hilal for one million US dollars ($ 272.3 million). Banks will continue their operations normally until consolidation, which is expected to be completed in the first half of 2019.