Fitch: United Arab Emirates banks merger positive

For a region that has long been viewed as being in need of banking system consolidation, the recent announcement of the proposed merger between the Emirates Bank International and the National Bank of Dubai is a welcome development for the over-banked United Arab Emirates, Fitch Ratings said.

This merger could herald the beginning of a wave of domestic and regional mergers as banking groups jostle for strategic positioning in a rapidly changing competitive environment, the agency said.

While the transaction details are limited, the benefits are banking group with significantly larger scale and franchise by regional standards, which will be better positioned to compete in a market where domestic competitive pressures have been on the rise, Fitch said. In addition, the larger capital base will mean that the institution will be more able to compete with the international players, more effectively pitching for the sizable number of large regional projects, the agency added.

Fitch said the proposed merger is credit-rating neutral, based on the information currently available, given that Emirates Bank's issuer default rating of A+ and stable outlook reflects the very high likelihood of support from the authorities. The agency will monitor developments and will make any further rating announcement in due course. Emirates Bank's other ratings are support 1, short-term F1 and individual B/C. National Bank of Dubai has a support rating of 1.

Mergers are not without their risks and integration risks will be an issue for two such prominent banks, the agency added.

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