Financial Regulatory Forum

Gulf banks urged to merge in crisis aftermath

By Reuters Staff
November 2, 2009

   By Eman Goma and Rania El Gamal
KUWAIT, Nov 2 (Reuters) – Gulf banks should merge in the wake of the financial crisis, first in their home markets and then across borders, Oman’s central bank head and senior Gulf bankers said on Monday.

Gulf central banks should begin by encouraging domestic consolidation and then expansion throughout the region to build up stronger financial institutions, Oman Central Bank Executive President Hamood Sangour al-Zadjali told Reuters.

“They should start merging between national banks in the GCC (Gulf Cooperation Council) and have strong financial units with strong capital as a first stage … and then, the regional expansion and mergers,” Zadjali said.

“After the financial crisis and the effect (it had) on some banks, maybe the motive for merging becomes stronger than before,” he said on the sidelines of a financial conference. “Central banks in the region should encourage and support (this).”

Bankers said obstacles remain, including the question of who would regulate a super-regional bank, but consolidation was needed to strengthen capital bases, specialise and tap an area gion whose growth is expected to outpace many developed regions.
NEXT STEP
“For mergers across borders, the time will come. But I think we will first see mergers within the (domestic) market,” Mashreqbank  Chief Executive Abdul Aziz Al-Ghurair said.

“The next step is a cross-border merger but only if regulators agree who regulates who,” he said.

The fast pace of growth in the Gulf, expected to rebound from the crisis faster than developed markets such as Europe and the United States, has lured a number of international banks into the region to provide lending volumes and services their local rivals cannot.

But consolidation has been rare, with the 2007 merger of Emirates Bank and National Bank of Dubai into Emirates NBD being a rare exception.

Rising demand for financial services — in debt and equity capital markets, project finance, structured finance and advisory — would support the creation of bigger, regional, Arab banks, said Jean-Christophe Durand, regional director for French bank BNP Paribas.

“The crisis will force people to be more open to this,” Durand told Reuters. “It would be wise to have banks with networks all over the GCC.”

Bankers have long pointed to a gap between the financing needs of the region, where governments are investing billions in infrastructure and economic diversification projects, and the ability of local banks to provide it.

Shaikha al-Bahar, deputy chief executive at the National Bank of Kuwait (NBK), questioned the ability of local banks to finance $2.3 trillion worth of government projects in the region, saying foreign banks could play an important role.

“Are we able to finance mega government projects that we have been calling for?” she said at the conference.

(Writing by Thomas Atkins; Editing by David Holmes) ((Dubai Newsroom, +971 4 366 3222, dubai.newsroom@reuters.com)

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