Due to increased rivalry and persistently low oil prices, Fitch Ratings has warned of a possible spike in mergers and acquisitions (M&A) among Gulf Cooperation Council (GCC) institutions. With more than 150 banks, including 75 local institutions, the region’s banking industry is seen as overbanked in relation to its population. Smaller banks are more likely to become takeover targets due to their smaller market share, greater funding costs, and lower capital buffers.
Bahrain’s crowded banking sector and relatively lower profitability make it an obvious choice for consolidation. Although the Central Bank of Bahrain seems to be in favour of consolidation, the process might be hampered by the absence of overlapping shareholders across banks. The direction of M&A activity in Oman and Kuwait is probably going to depend on local economic reforms and improvements in profitability.
Saudi Arabia and Qatar, on the other hand, are anticipated to face less pressure to consolidate. Despite their size, Qatar’s banks continue to be very profitable, which lessens the incentive for M&A. Saudi Arabia, with its larger population and robust growth outlook, is not considered overbanked, further diminishing the likelihood of widespread mergers.
The region’s Islamic banks are also showing signs of consolidation. The merger of Kuwait Finance House with Bahrain’s Ahli United Bank, which created a major Islamic finance organisation, and Dubai Islamic Bank’s acquisition of Noor Bank are noteworthy examples. Fitch anticipates that digital banking advancements and open banking regulations will further drive M&A activities, as traditional banks seek partnerships with tech and telecom companies to enhance competitiveness.
