2016 has been all about consolidation for oil-rich Persian Gulf states,
Cutting of state spending, tapping reserves and combining some of their largest banks to reduce costs and duplication has been forced in countries such as the United Arab Emirates, Qatar and Saudi Arabia due to oil’s more than 50 percent plunge over the past two years.
With assets worth more than 160 billion riyals ($44 billion), they are in talks to create the country’s largest sharia-compliant bank and the third-largest such lender in the Middle East, Masraf Al Rayan QSC, Barwa Bank and International Bank of Quatar said this week in Qatar. But the banks said that the talks are at an early stage.
Efforts to create one of the largest bank’s in the Middle East with $175 billion of assets were made earlier this year by Abu Dhabi lenders National Bank of Abu Dhabi PJSC and First Gulf Bank PJSC. Falling profits because of lower government spending, slower economic growth and a decline in asset quality are the headwinds that are impacting the banks now and the combinations come as the industry battles those headwinds.
Allison Wood, a Dubai-based consultant at Control Risks Group Ltd said that regional consolidation is an “easy first step to stemming government spending.”
“It’s not a complete solution to the fiscal problems that these states face. They need a much broader reform package.”
Talal Samhouri, head of asset management at Doha-based Amwal LLC said that the planned merger of Masraf — with a market value of about $7.3 billion — with privately held Barwa and IBQ is intended to “strengthen the banks rather than acquire new market share.”
He said that the combination will “strengthen the balance sheets of these banks, and also cut costs by consolidating back office, services, and other areas to unify operations.” “They have a small retail network with limited exposure outside Qatar, so will complement each other.”
Doha Bank QSC Chief Executive Officer Raghavan Seetharaman said in May, that the shortage of liquidity in Qatar became more serious this year than during the financial crisis in 2008. The same month the government sold $9 billion of Eurobonds.
Banks aren’t the only entities being merged. Qatar Petroleum Chief Executive Officer Saad al-Kaabi said earlier this month that in a move that will save hundreds of millions of dollars, Qatar is also consolidating its state-owned liquefied natural gas producers Qatar Liquefied Gas Co. and Ras Laffan Liquefied Natural Gas Co. last year, as part of an eight-month restructuring, QP, the world’s biggest producer of liquefied natural gas, took over its foreign investment arm Qatar Petroleum International.
And the list includes the region’s sovereign wealth funds — some of the world’s biggest.
Grouping $100 billion of investments in local companies into a new unit and abandoning the Qatar Holding name synonymous with its highest-profile deals, Qatar Investment Authority is undergoing its biggest overhaul since 2014, the media had reported in May.
Merging to create an entity with assets of about $135 billion and debt of about $42 billion are Mubadala Development Co. and International Petroleum Investment Co., two of Abu Dhabi’s largest sovereign funds. The emirate plans to cut costs by combining the investment funds with common assets in areas such as energy, financial services, health care and is reining in spending as the decline in oil prices slows economic growth.
(Adapted from Bloomberg)