Fitch Ratings has said that banks in the Gulf Cooperation Council (GCC) are set to see more merger and acquisition (M&A) activity as the pressure of falling oil prices bites. Smaller banks with little market share are especially vulnerable to being taken over as the environment changes.
Bahrain’s banking industry is seeing significant consolidation. National Bank of Bahrain (NBB) and Bank of Bahrain and Kuwait (BBK) have started merger talks, with the objective of building the second-largest bank in the country with assets worth around \\$26 billion. It comes after Al Salam Bank’s string of acquisitions, such as the Ithmaar Bank takeover and a major holding in BBK. These mergers are expected to increase cost-effectiveness and profitability by way of economies of scale.
Kuwait’s financial sector is also seeing an increase in M&A activity. Boubyan Bank and Gulf Bank are exploring a potential merger that would create an Islamic bank of around KWD16 billion (\\$53 billion) in assets, capturing some 15% of market share. Burgan Bank, meanwhile, has disclosed plans to buy Bahrain’s United Gulf Bank as part of a larger strategy to focus on GCC operations.
Apart from regional mergers, GCC banks are pursuing overseas expansion to diversify and strengthen profitability. Fitch Ratings cites an increasing interest on the part of Gulf banks to acquire banks in high-growth economies like Türkiye, Egypt, and India. The three markets have strong economic potential and less saturated bank markets, offering good opportunities for GCC banks to diversify domestic growth constraints.
The pace towards consolidation and global expansion demonstrates a strategic move on the part of GCC banks to face the difficulties of an evolving economic climate, guaranteeing resilience and long-term growth in the light of volatile oil revenues.
