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Dubai Bank takeover does not signal trend of consolidation

English.news.cn   2011-10-12 07:26:32 FeedbackPrintRSS

DUBAI, Oct. 11 (Xinhua) -- News that Bank Emirates NBD takes over Dubai Bank is unlikely to trigger a wave of consolidation in the Gulf Arab region. This is not a typical merger, but rather a handover arranged by the state.

Dubai Bank, which was hit hard by the financial crisis and has stopped publishing financial figures in 2009, was taken over by the Dubai Government on May 16 this year. The government, under its ruler Sheikh Mohammed Bin Rashid Al Maktoum, bailed out the Islamic financial institution and now handed it over to Emirates NBD, the United Arab Emirates's largest lender in relation to assets.

Dubai Bank, on the other hand, is behind rank 40 among the 51 banks in the UAE. A total of 23 local lenders and 28 foreign banks share the UAE market.

Although regarded as overbanked, the UAE takes rare steps towards consolidation. Emirates NBD, which is owned 55.7 percent by the sheikhdom, is a result of a merger dating back to 2007 between Emirates Bank International and National Bank of Dubai. Since then no other banks in the Gulf state bought a competitor or merged with one of its rival.

The reason behind this lies not in a lack of risk affinity, but in the institutional background of the financial sector.

Among the 23 banks, Dubai-based Mashreq Bank is the only lender which is 100 percent owned by private shareholders, with billionaire family Alghurair holding the majority.

Emirates NBD is chaired by Sheikh Ahmed Bin Saeed Al-Maktoum, who also chairs Dubai World, a government-owned holding comprising six large firms which almost control the transport and real estate economy in the emirate.

In the first half of 2011, Emirates NBD reported a net profit of 2.157 billion Dirham (587 million U.S. dollars), up 43 percent from the first half in 2010.

The state's stake at all other 22 banks makes it almost impossible for foreign financial institutions to acquire a local UAE bank.

In addition to that, by law, foreign banks are allowed to operate only eight branches in the country. While in Europe, bank bailouts by the state are controversially discussed among politicians, in the Gulf Arab region they are usual. In 1998, the Dubai government bailed out Dubai Islamic Bank, the oldest lender which operates under Islamic law or Shari'ah.

In October 2008, shortly after the fall of US investment bank Lehman Brothers, the UAE Central Bank pumped some 70 billion Dirham to keep up interbank liquidity.

"The UAE government and the central bank have their efficient mechanisms in order to saveguard the financial sector, even in case of a sovereign default in Greece," UAE Minister of Economy Sultan Al Suwaidi said on Monday at the World Economic Forum Summit for the Global Agenda in Abu Dhabi.

Other Gulf states also hesitate with consolidation moves. In June this year, the International Bank of Qatar or IBQ skipped merger talks with its rival Al Khaliji Bank due to differences in how common bank could look like. As long as state control rules in the Gulf Arab banking sector, consolidation will remain hard to achieve.

Editor: Chen Zhi
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