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In a booming market, the hottest property of all is a UAE banking license.

September 8, 2008 10:54 by



When Qatar’s biggest bank, Qatar National Bank (QNB), purchased a 24 percent stake in Dubai’s Commercial Bank International in late August, it raised plenty of chatter. Many say the UAE banking sector is undergoing a wave of consolidation. Reuters called it “the latest sign that regional banks will consolidate to compete in a Gulf economic boom,” which is an odd formulation: Businesses usually merge during troubled times and multiply during a boom, not vice versa. So what’s going on here?

Actually, perhaps the first question is whether this is a trend at all. The QNB-CBI link-up comes on the heels of an announcement a week earlier that Kuwait’s Global Investment House aims to take a 20 percent stake in National Bank of Umm Al Quwain. The transaction has yet to receive regulatory approval and no timeframe was set, and Global is still seeking the $410m to finance the deal, but never mind that: In journalism, two’s a trend. (For that matter, often one’s a trend, and in some cases, none – although takes a gifted hack to pen a trend piece without a single example of the trend in question.)

In fairness to our colleagues in the trade, certainly more examples come up if one takes the longer view. The event that sparked all this talk of consolidation was last year’s landmark merger between Emirates Bank and National Bank of Dubai to create Emirates NBD, a UAE mega-bank controlled by the Dubai government. Said to have been engineered at the highest level of power in Dubai, the ruler himself, Emirates NBD has about 20 percent of all the banking assets in the country. Also last year, Commercial Bank of Qatar bought close to 35 percent – again, like the QNB-CBI deal and the Global plan, a minority stake – in Sharjah-based United Arab Bank. And apart from that, consolidation is a hot topic among banking industry insiders, for whatever that’s worth.

Still, before we get too hasty, consider the following: Last October, ING Wholesale Banking released a report on the UAE banking sector (not online, unfortunately) that gave mixed signals on prospects for sector consolidation. On the one hand ING said: “On a longer-term basis, we see more concentration of assets among the big banks, especially as the growth curve levels off and the credit cycle matures. This would drive a consolidation wave in the sector, in our opinion.” On the other hand, “we do not see any strong catalyst for a consolidation wave.”

Thanks for the clarity.

Indeed, ING added, the creation of Emirates NBD “could stand as a unique case driven by a number of ‘politically-driven’ merger synergies.” The ING view is that yes, consolidation might happen – but probably not without a trigger such as an economic downturn.

There’s little consensus here, but the fact remains: The UAE has a lot of banks for a country and economy of its size – a total of 51 at last count, 23 local and 28 foreign – and meanwhile, business is booming. Loans and deposits are both rising at a spectacular rate, with compounded annual growth of 38% and 30%, respectively, between 2005 and 2007, according to Al Mal Capital.

And even though the market is crowded, demand is such that banks can afford to keep margins high. These guys are making money, in other words. Witness UAE mortgage rates, which have yet to come down substantially in tandem with the drop in inter-bank lending rates (i.e. the rate at which banks borrow the money which they then lend out).

But while the industry thrives, the government has not given out any new licenses for years and appears unlikely to do so anytime soon. That’s why only way for foreigners to get access to that eye-popping growth is to grab a stake in one of country’s smaller lenders.

Conclusion: If this is not a trend, it’s certainly a non-trend to keep your eye on.



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