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NBAD, FGB will merge to create regional mega-lender

The announcement of a merger between NBAD and FGB in the UAE to create an even larger regional player could have a significant negative impact on the lending operations of smaller players in the country, which already lend to lower rated borrowers.

Jul 6, 2016 // 4:42PM

The National Bank of Abu Dhabi and First Gulf Bank have announced plans to merge. The new lender, to be named NBAD, will have US$175bn worth of assets according to the former of the two bank’s press release.

The new bank, to be formed in Q1 2017, will be the largest lender in not only the UAE but also the region, and will have a presence in 19 foreign markets, including Singapore, Hong Kong, Geneva and London according to Bloomberg.

The new bank will have a Tier 1 capital ratio of 15.7%. Its lending book will comprise of 52% of loans to the business sector, 26% to the retail sector and 22% to the government sector.

Figures from Bloomberg show that the new bank will have a market value of about US$30bn. The new bank’s share of total loans within the UAE will account for over 25% of the market share, which is over 10% more than NBAD currently has.

Bloomberg noted that within the UAE’s financial services sector, 50 lenders compete in a market for a population of only 9 million.

A senior banker basedin the region said that the merger of two of the country’s strongest banks could have an impact on the lending and borrowing options available to the many other smaller lenders in the UAE.

NBAD’s share of the UAE’s loan markets currently stands at just over 15%, whilst FGB’s stands at around 12% figures from Bloomberg show.

“It is likely that many borrowers across the region will want to go to the new bank over other lenders,” the banker noted.

Bloomberg stated that although the cost of the merger will be around AED600mn, the merger will enable savings of AED500mn (US$136mn) annually.

Credit Suisse is acting as financial advisor to NBAD, whilst UBS is advising FGB.

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