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Satyendra Pathak
Doha
Banks in the GCC are turning to consolidation and financial technology (fintech) to help overcome the economic fallout from Covid-19 and the drop in global oil prices, Oxford Business Group (OBG) has said in its latest report.
With economies in the region still highly reliant on oil revenue, OBG said, the Gulf banking sector has been forced to manage the twin economic challenges of the pandemic and oil price crash.
One potential by-product of the twin crises could be a second wave of mergers and acquisitions (M&A) in the region.
Following the 2014 oil price crash, a number of GCC banks turned to M&A to enhance resilience.
This process has been most prominent in the UAE, which saw the MENA region’s largest merger last year between Abu Dhabi Commercial Bank and Dubai’s Union National Bank and the Abu Dhabi-headquartered Islamic finance institution Al Hilal bank.
Qatar experienced its first-ever tie-up with the merger of Barwa Bank and the International Bank of Qatar. While this rate of M&As may be difficult to maintain, industry officials suggest that the ongoing economic downturn could spur further M&A activity in some markets.
“When it comes to a further consolidation of the banking sector it is still too early to tell for sure, but it is possible that we will see some movement here in Qatar in 2021,” Doha Bank Group CEO R Seetharaman told OBG.
“What is certain is that many aspects of the industry will have to be re-aligned when it comes to restructuring debt and digitisation,” Seetharaman said.
“Notwithstanding the recent run of mergers in the UAE, with 48 banks operating in the country made up of 27 foreign and 21 domestic institutions, the country is still overbanked, and is likely to see further consolidation,” the report said.
Meanwhile, countries like Oman and Bahrain are also experiencing post-COVID-19 tie-ups.
In mid-April, the Central Bank of Oman signed off on the regulatory approval of a merger between Oman Arab Bank (OAB) and Alizz Islamic Bank. The development comes after the two institutions agreed on a share-swap deal that will see OAB take an 81 percent stake in the entity. While there has been a flurry of M& A activity in recent years, most of it has been between domestic institutions.
Banks looking to merge at a national level have benefitted from having the same laws and requirements and often the same shareholders as prospective partners, while international deals have been seen as risky and complicated.
While most analysts do not expect too much cross-border activity in the near term, some institutions could consider such mergers as a way of pooling resources and improving efficiency.
Aside from M&A, the report said, an increased fintech uptake stands as another potential legacy of the coronavirus pandemic.
With all states in the Gulf introducing some form of lockdown and social distancing measures, the pandemic has proven to be the catalyst for a spike in digital banking activity.
As demand for fintech and digital payments services rises, it is expected that the number of products and services will also diversify throughout the region, while governments will look to update regulations and legislation.
“The way we work has changed and so have customer attitudes,” Seetharaman said.
“These new realities are here to stay and as a result, legislators will now have to redefine the game in terms of e-commerce legislation and transaction-based processing. We will also increasingly see the implementation and harnessing of tools such as AI, big data, and blockchain across the industry moving forward,” he said.
Doha
Banks in the GCC are turning to consolidation and financial technology (fintech) to help overcome the economic fallout from Covid-19 and the drop in global oil prices, Oxford Business Group (OBG) has said in its latest report.
With economies in the region still highly reliant on oil revenue, OBG said, the Gulf banking sector has been forced to manage the twin economic challenges of the pandemic and oil price crash.
One potential by-product of the twin crises could be a second wave of mergers and acquisitions (M&A) in the region.
Following the 2014 oil price crash, a number of GCC banks turned to M&A to enhance resilience.
This process has been most prominent in the UAE, which saw the MENA region’s largest merger last year between Abu Dhabi Commercial Bank and Dubai’s Union National Bank and the Abu Dhabi-headquartered Islamic finance institution Al Hilal bank.
Qatar experienced its first-ever tie-up with the merger of Barwa Bank and the International Bank of Qatar. While this rate of M&As may be difficult to maintain, industry officials suggest that the ongoing economic downturn could spur further M&A activity in some markets.
“When it comes to a further consolidation of the banking sector it is still too early to tell for sure, but it is possible that we will see some movement here in Qatar in 2021,” Doha Bank Group CEO R Seetharaman told OBG.
“What is certain is that many aspects of the industry will have to be re-aligned when it comes to restructuring debt and digitisation,” Seetharaman said.
“Notwithstanding the recent run of mergers in the UAE, with 48 banks operating in the country made up of 27 foreign and 21 domestic institutions, the country is still overbanked, and is likely to see further consolidation,” the report said.
Meanwhile, countries like Oman and Bahrain are also experiencing post-COVID-19 tie-ups.
In mid-April, the Central Bank of Oman signed off on the regulatory approval of a merger between Oman Arab Bank (OAB) and Alizz Islamic Bank. The development comes after the two institutions agreed on a share-swap deal that will see OAB take an 81 percent stake in the entity. While there has been a flurry of M& A activity in recent years, most of it has been between domestic institutions.
Banks looking to merge at a national level have benefitted from having the same laws and requirements and often the same shareholders as prospective partners, while international deals have been seen as risky and complicated.
While most analysts do not expect too much cross-border activity in the near term, some institutions could consider such mergers as a way of pooling resources and improving efficiency.
Aside from M&A, the report said, an increased fintech uptake stands as another potential legacy of the coronavirus pandemic.
With all states in the Gulf introducing some form of lockdown and social distancing measures, the pandemic has proven to be the catalyst for a spike in digital banking activity.
As demand for fintech and digital payments services rises, it is expected that the number of products and services will also diversify throughout the region, while governments will look to update regulations and legislation.
“The way we work has changed and so have customer attitudes,” Seetharaman said.
“These new realities are here to stay and as a result, legislators will now have to redefine the game in terms of e-commerce legislation and transaction-based processing. We will also increasingly see the implementation and harnessing of tools such as AI, big data, and blockchain across the industry moving forward,” he said.
