National Bank of Abu Dhabi and First Gulf Bank have held preliminary talks on a merger, two sources with knowledge of the matter said on Thursday, in what would create the largest bank by assets in the Middle East and Africa.
Bank mergers in the Gulf region are rare. Agreeing on a suitable valuation is also often a stumbling block in regional tie-ups.
But with low oil prices squeezing liquidity in the banking system and subduing economic growth in the United Arab Emirates, banks are under pressure to adapt to the new market conditions.
“There’s a proposal to merge the two to create one champion bank,” one of the sources said.
The second source said a formal announcement on the possible merger could be made as soon as this month.
Spokespeople for NBAD and FGB, Abu Dhabi’s largest and third-largest banks by assets respectively, both said they didn’t comment on rumours and speculation.
The merger has precedent in the UAE: in neighbouring Dubai in 2007, Emirates Bank International and National Bank of Dubai were combined by the government to create Emirates NBD, Dubai’s biggest bank.
Tie-ups
Should the tie-up between NBAD and FGB happen, it would create a bank with assets worth around Dh627 billion ($171 billion), according to figures from last March 31.
This would make it the largest bank by assets in the Middle East and Africa, usurping Qatar National Bank’s 550 billion riyals ($151.1 billion) at the end of the first quarter and Standard Bank’s 1.98 trillion South African rand ($128.2 billion) as of December 31, 2015.
Abu Dhabi has in the past used tie-ups in other industries to support the local economy and create larger firms which can compete more effectively; it merged Aldar Properties with Sorouh Real Estate in 2013, and Dubai Aluminium and Emirates Aluminium in the same year.