The merger of National Bank of Abu Dhabi and First Gulf Bank is significant on two fronts: It will create the largest bank in the Middle East and it also illustrates how the UAE is using the austerity created by the current downturn in the oil price to achieve greater synergies in its commercial entities.

The UAE has a relatively large number of banks for its small population and while many of the smaller boutique-style banks are unlikely to merge, it is significant that the larger players are looking at building bigger institutions.

In time, they could use this increased size to play a larger role in the financial industry, both regionally and globally. It is a comment on the conservative nature of Arab banking — that despite their healthy balance sheets, no Arab institution has yet managed to compete with the established global banks.

The merger of the two Abu Dhabi banks follows last week’s announcement that two of Abu Dhabi’s larger strategic investment companies, Mubadala and Ipic, would merge to coordinate their projects and to benefit from synergies.

A similar logic can be applied to the banks’ merger as there are significant savings to be made by merging the operations of the two banks. But it is also clear that Abu Dhabi is looking to manage its banks and commercial entities better from the perspective of the government. While each company has been focusing on its own remit, the mergers allow the management to be more aware of how their operations fit into the wider strategic plan for the emirate and the UAE.