• The growing number of banks in Kuwait highlights their shift toward mergers and acquisitions to seize growth opportunities, diversify business models, and strengthen financial positions.
• Mergers and acquisitions help Gulf banks strengthen their market position, expand their customer base, improve efficiency, and enhance competitiveness.
• Through mergers, Gulf banks can expand their operations and presence in new regions by merging with banks in neighboring countries or global markets, allowing for geographical expansion and access to new customers and opportunities.
Standard & Poor Global has reported that the Gulf region is gearing up for a new wave of bank mergers and acquisitions for the remainder of the year, according to Al Qabas newspaper.
The agency’s report highlights that Gulf banks have seen increased profits due to prolonged high interest rates. As interest rates begin to decrease, Gulf banks are expected to shift their strategies to capitalize on growth in various markets and reduce operating costs.
Gulf banks explore opportunities for mergers or acquisitions
The agency noted that Gulf banks, especially in Kuwait, are exploring opportunities for mergers or acquisitions, with five out of the seven banking and asset management deals in the Gulf this year involving Kuwaiti banks.
Analysts, according to the agency, expect Gulf banks to seek further merger and acquisition opportunities in the United Arab Emirates, Saudi Arabia, and Bahrain for the rest of the year. They pointed out that, with the exception of Kuwait ‘which is linked to an undeclared basket of currencies’, Gulf countries peg their currencies to the US dollar and typically follow its interest rate changes. Consequently, the largest Gulf banks have recently reported significant growth in lending income.
The agency added, “At the same time, Kuwaiti banks’ growth opportunities have been hindered by limited prospects, political rigidity, and regulatory constraints. As a result, the country’s banking sector is increasingly turning to mergers and acquisitions as a strategic response to these challenges.”
Mergers and acquisitions boost Gulf banks’ strength, efficiency, and market position
Experts say that mergers and acquisitions offer Gulf banks an opportunity to bolster their strength and position in the market. These deals can help banks expand their customer base and product offerings, improve operational efficiency, and reduce administrative costs, thereby enhancing competitiveness and enabling the provision of diverse and innovative services.
They noted that such mergers allow Gulf banks to better address economic challenges, such as oil price fluctuations and slowing growth. By consolidating, banks can strengthen their capital, enhance their ability to manage economic risks, diversify income sources, and reduce exposure to financial instability.
Additionally, mergers enable banks to boost their capacity for innovation and leverage technology in banking services. Combining resources and expertise allows banks to achieve technological advancements and improve the customer experience through advanced and innovative digital banking solutions.
They added, “Through mergers, Gulf banks can expand their operations and presence in new regions by merging with banks in neighboring countries or global markets, allowing for geographical expansion and access to new customers and opportunities.”
Acquisition plans
Boubyan Bank and Gulf Bank have announced merger plans that, if completed, will create an Islamic bank with assets of approximately KD 16 billion and a market share of about 15%.
Burgan Bank has previously decided to acquire a 100% stake in Bahrain’s United Gulf Bank. This decision follows the sale of 52.2% of its stake in Burgan Bank Turkey to Al-Rawabi United Holding Company and the sale of its 51.8% stake in Bank of Baghdad to Bank of Jordan and Kuwait last year. Burgan Bank aims to refine its capital structure and concentrate on its business within the Gulf region.
In 2022, Kuwait Finance House (KFH) acquired Bahraini United Ahli Bank, which enhanced its presence in Egypt and Britain and increased its market share in Kuwait. KFH also plans to expand further in Saudi Arabia. This external expansion has opened up larger business opportunities and increased revenues, compensating for the limited growth prospects in the Kuwaiti market.
It is worth noting that Fitch Ratings has indicated that the recent surge in mergers and acquisitions in the Kuwaiti banking sector is a positive credit factor.
The increase in the number of banks in the Kuwaiti market reflects how Kuwaiti banks are increasingly turning to mergers and acquisitions as a strategic response to growth opportunities, diversification of their business models, and strengthening of their financial positions.
The most prominent deals
The most notable mergers and acquisitions in the Kuwaiti banking sector are:
- 2024: Boubyan Bank and Gulf Bank announce a merger study.
- 2024: Burgan Bank acquires United Gulf Bank in Bahrain.
- 2023: Merger negotiations between Gulf Bank and Al Ahli Bank of Kuwait fail.
- 2022: Kuwait Finance House (KFH) acquires United National Bank in Bahrain.
- 2020: Boubyan Bank acquires a majority stake in Bank of London and the Middle East.
Feasibility study of the Gulf and Boubyan merger
Gulf Bank has signed a memorandum of understanding with Boubyan Bank to explore the feasibility of a merger. This memorandum outlines their discussions and intentions to independently assess the proposal, aiming to maximize benefits for the shareholders and investors of both banks while adhering to regulatory authority guidelines.
According to a statement from Gulf Bank on the Kuwait Stock Exchange, the bank confirmed its commitment to relevant instructions and laws, including obtaining any required approvals from regulatory authorities.
Among these requirements is securing approval from the Central Bank of Kuwait to appoint consultants before starting the feasibility study of the merger and conducting due diligence. Gulf Bank announced that it would disclose any significant developments related to this matter.
At the end of July 2024, the two banks proposed a strategic growth and expansion opportunity through their merger to create a single banking entity compliant with Islamic Sharia provisions.
The proposal was presented to and approved by the Boards of Directors of both banks. The boards have instructed to proceed with the necessary practical steps, including studying the initial feasibility of the merger and conducting due diligence, after obtaining the required approvals.
