GCC banking sector to witness more M&A activity: Moody's

Moody's Investors Service expects further consolidation in the GCC banking sector despite economic recovery across most Gulf regions and positive growth forecasts for 2019.

"A flurry of merger and acquisition activity among Gulf Co-operation Council (GCC) banks has emerged in recent months, and this is credit positive for the region's banks," it noted.

In 2017, National Bank of Abu Dhabi and First Gulf Bank merged to create the United Arab Emirates' largest bank, which was renamed First Abu Dhabi Bank. Another potential merger involves Abu Dhabi Commercial Bank, Union National Bank and Al Hilal Bank is in the pipeline. There is further activity in Qatar, Oman and Saudi Arabia but none has been finalised. A cross-border deal between Kuwait Finance House and Bahrain's Ahli United Bank is also in discussion.

According to Moody's, consolidation among GCC banks will boost profitability as the banking sector growth is largely dependent on GDP growth and government spending in these economies.

"Low oil prices in 2014 and through 2016 hit government budgets and slowed economic growth across the region, intensifying competition for deposits and borrowers, consequently dampening GCC banks' profits," it added.

Despite integration challenges in the early stages, merged banks will gain market share and benefit from greater pricing power and cost synergies, said Moody's.