Fitch says falling oil prices ‘may’ accelerate Gulf banks mergers
Overcrowded banking sector, declining oil prices, weak global demand may increase pace of M&As among Gulf banks
Fitch Ratings has stated that declining oil prices and weak global demand may accelerate the pace of mergers and acquisitions (M&As) among Gulf banks.
The challenging operating environment is pressuring profitability, especially for smaller banks with weak operations, high financing costs, and limited capital reserves, making them likely targets for consolidation as larger institutions seek to diversify income sources and grow their market share, reports Al-Rai daily.
The agency noted that the Gulf banking sector is overcrowded, with over 150 banks, including 75 local commercial banks. Many institutions share common shareholders, which could ease the process of consolidation in some cases. However, the influence of these shareholders may not always be strong enough to push through mergers.
Bahrain stands out as the most likely market for banking consolidation, due to its dense banking landscape, weak profitability, and low growth potential. While regulators are supportive of mergers, the lack of common shareholders among banks may hinder such efforts.
Oman and Kuwait also face banking surpluses and moderate profitability, though consolidation pressure in Kuwait could ease with successful economic reforms. Oman’s relatively low banking assets-to-GDP ratio leaves room for growth.
In contrast, Qatar and Saudi Arabia are less likely to see widespread mergers. Qatar enjoys strong banking profitability despite having several banks serving a small population. Meanwhile, Saudi Arabia lacks a banking surplus and has robust growth potential and a low banking assets-to-GDP ratio, reducing the need for consolidation.
Fitch highlighted recent mergers, such as Kuwait Finance House’s acquisition of Bahrain’s Ahli United Bank, as examples of value-driven consolidation, aiming to build dominant players.
The agency believes digital transformation will further influence M&As, with banks looking to partner with tech and telecom companies to improve competitiveness. Open banking developments are also expected to drive joint ventures and strategic partnerships.
Islamic banks have shown strong interest in consolidation. Mergers like Dubai Islamic Bank’s acquisition of Noor Bank and activity in Oman involving Oman Arab Bank and Sohar International Bank reflect efforts to boost market share. While most deals remain local, Fitch anticipates more cross-border acquisitions, though expansion outside the GCC — especially in volatile markets like Turkey and Egypt —poses added risks.
