Fitch: GCC Islamic Banks to Continue M&A
Saturday, 08 10 2019, Category: Banking, Country: Gulf Cooperation Council
Islamic bank mergers and acquisitions in the GCC region are likely to increase as many Islamic banks still lack the market position needed to compete with large established peers, particularly in overbanked markets such as the UAE, Fitch Ratings says. Consolidation should ultimately be positive for the Islamic banking sector by creating larger, stronger and more efficient Islamic banks. However, banks' Issuer Default Ratings will typically be unaffected, given that most GCC bank ratings are driven by our assumption that sovereign support will be provided to banks (directly or through a parent bank), if needed.
GCC Islamic banking M&A is driven by the search for competitive advantage to access growth opportunities and build low-cost deposits, as well as by cost synergies. Deals usually need government backing given the significant stakes that governments hold in most banks. Most Islamic bank M&A is between Islamic banks or involve a conventional bank acquiring an Islamic bank as a subsidiary. Islamic banks cannot easily acquire conventional banks. Integration risks can be high, especially when both Islamic and conventional banks are involved.
Islamic banking has been a growth area for the last ten years with most GCC countries trying to build their Islamic financing capabilities and create domestic Islamic finance hubs. Accessibility to Islamic products and instruments has grown rapidly with product innovation. However, in an overbanked region, some of the newer franchises have struggled to find good growth opportunities and to attract cheap and stable deposits, given the strength of existing competition. They have also been hindered by the ability of conventional banks in some countries to offer Islamic financing and take Islamic deposits.
Source: Salaam Gateway