GCC bank mergers may accelerate on lower oil prices: Fitch

Consolidation among GCC banks may gain momentum if lower oil prices add to competitive pressure in the region, Fitch Ratings said in a recent report.

 

It added that sustained lower oil prices and weaker global demand may put pressure on GCC bank operating environments, leading to weaker profitability and acting as a catalyst for M&A as banks seek to diversify their revenues and increase scale. Smaller banks may become targets due to their weaker franchises, and often higher funding costs and thinner capital buffers.

 

Saudi Arabia stands out as the one GCC market that does not appear overbanked given its much larger population, lower banking system assets/GDP ratio and strong growth prospects, the agency said.

 

It added that bank sector M&A in the GCC has been focused on enhancing shareholder value through strengthened market positions and economies of scale. This has led to the creation of dominant entities, such as First Abu Dhabi Bank and Saudi National Bank.

 

"We expect digital banking and new digital entrants to be an increasingly significant driver of consolidation in the region, with banks seeking technological partnerships to improve competitiveness," Fitch said, adding that the expansion of open banking is also likely to influence M&A strategies, fostering joint ventures between tech companies, telecom firms, and banks.