Abu Dhabi Banks Said in Talks to Form Biggest Middle East Lender

  • National Bank of Abu Dhabi, First Gulf Bank explore merger
  • Discussions are at an early stage and may not lead to deal
High rise buildings in Abu Dhabi.
High rise buildings in Abu Dhabi.
Photographer: Dan Kitwood/Getty Images

National Bank of Abu Dhabi PJSC and First Gulf Bank PJSC are exploring a potential merger to create the largest lender in the Middle East, according to people with knowledge of the matter.

Discussions about a combination are preliminary, the people said, asking not to be identified because the talks are private. While negotiations are ongoing, NBAD and FGB may decide against pursuing a merger, said the people. NBAD and FGB both said it is not their policy to comment on speculation or rumor.

With assets of about $170 billion the potential combination would surpass Qatar National Bank SAQ as the largest bank in the region, and comes as the industry battles falling profits because of lower government spending, slower economic growth and a decline in asset quality. Both NBAD and FGB posted a drop in first-quarter net income.

“There is scope for revenue synergies if the merger between FGB and NBAD does occur, because FGB is a retail-oriented bank while NBAD is more corporate focused,” Shabbir Malik, a banks analyst at investment bank EFG-Hermes Holding SAE, said in an e-mailed response to questions. “We believe that this could be the beginning of a trend of consolidation in the sector, considering that growth outlook for the UAE is relatively weak.”

Bank Merger

A deal would also mark the United Arab Emirates’s first major banking-industry merger since National Bank of Dubai and Emirates Bank International combined to create Emirates NBD PJSC in 2007. Shayne Nelson, the bank’s chief executive officer, has called for further consolidation, saying too many banks are serving a relatively small population.

The U.A.E. is home to about 9 million people and has about 50 banks, including the local units of Citigroup Inc., HSBC Holdings Plc and Standard Chartered Plc. Both NBAD and FGB are pushing to expand in other countries to beat the limitation of a small home market and building their investment banking businesses to compete with bigger foreign rivals.

NBAD, with a market value of about $11.3 billion, is 69 percent owned by sovereign wealth fund Abu Dhabi Investment Council. State-owned investment fund Mubadala Development is the biggest shareholder in FGB, whose market capitalization is $14.4 billion, according to data compiled by Bloomberg.

Recent major deals in the U.A.E. include mergers in the commodities and real estate industries. Emirates Global Aluminium was formed in 2013 through the combination of Dubai and Abu Dhabi’s aluminum companies, and Abu Dhabi property developer Aldar Properties PJSC acquired Sorouh Real Estate Co. in June the same year.

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