UAE’s biggest banks mull overseas acquisitions

Reuters/Satish Kumar

• Banks target markets with large populations and strong demographics
• Emirates NBD bought BNP Paribas’s Egypt operations
• First Abu Dhabi plans expansion via organic growth and M&A

As domestic loan growth wanes, the UAE’s top two banks are eyeing foreign acquisitions to bolster their income. 

First Abu Dhabi (FAB) and Dubai’s Emirates NBD are majority owned by their respective emirates’ governments or ruling families and are ranked second and sixth in the Middle East and Africa in terms of bank assets, according to S&P Global Market Intelligence. 

Both bought banks in Egypt over the past decade, while Emirates NBD also acquired a Turkish lender, but generally the duo have opted to open foreign offices to expand their footprint and still rely heavily on their domestic operations for income. For example, 73 percent of Emirates NBD’s loan book is in the UAE and 87 percent of FAB’s 2022 post-tax profit was derived locally. When approached to comment on these figures, both declined. 

• First Abu Dhabi Bank rules out bid for Britain’s Standard Chartered
• Emirates NBD’s 2022 net profit rises 40% to $3.5bn

UAE banking industry loan growth will slow to around 3 percent this year, S&P Global forecasts, down from nearly 6 percent in 2022. Higher interest rates, a slowdown in non-oil activity and uncertain global economic conditions are depressing borrowing demand. 

And it is these dynamics that are spurring FAB and Emirates NBD to consider foreign acquisitions, according to analysts.  

“We have made no secret that we are looking for inorganic opportunities,” Shayne Nelson, Emirates NBD’s chief executive, said in January. 

Karim Karoui, FAB’s head of mergers and acquisitions (M&A), said its top priorities include “expanding our presence in priority markets through organic growth and M&A”.

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Making acquisitions within the six-country GCC would be unlikely for now, said Amer Halawi, head of research at Al Ramz Capital in Abu Dhabi. Instead, they will probably look further afield. 

On February 10, First Abu Dhabi reiterated it was not considering buying Standard Chartered bank. That follows a FAB announcement on January 5 that it had previously been in the early stages of evaluating a possible offer for its London-based rival but was no longer doing so.

FAB’s stock fell 8.4 percent in the week following the January 5 statement. 

Similarly, shares in Saudi National Bank tumbled 9.4 percent in the two days after the state-backed lender announced on October 27 that it would pay 1.4 billion Swiss francs for a 9.9 percent stake in Credit Suisse. 

“The market is clearly saying it doesn’t like bank cross-border M&A, because minority investors don’t see how such deals will add value to the acquiring banks,” said Shakeel Sarwar, head of asset management at Bahrain’s SICO investment bank.

“Gulf banks’ strength is their domestic and regional economies. There’s not a single example where a Gulf bank has added value by investing in another bank outside the Gulf. Domestic and intra-GCC M&A is seen as positive, however.”

“From a shareholder viewpoint, foreign M&A offers potential for a step change in growth, but adds to uncertainty and potentially to currency risk,” said Akber Khan, senior director of asset management at Al Rayan Investment in Doha.

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In April 2022, FAB withdrew its offer for Egyptian investment bank EFG Hermes, citing “ongoing global market uncertainty and volatile macro-economic conditions”.

FAB had offered to pay $1.2 billion for a minimum 51 percent stake in its Egyptian rival. 

“From FAB’s strategic perspective, its investment banking and capital market businesses are significant, but the ambition is even greater, as evidenced by the recent bid for EFG Hermes,” Halawi said.

“The bank aspires to expand and isn’t shying away from saying that. Would it make sense for FAB to grow externally via acquisitions? Of course.”

FAB’s Karoui told analysts his bank would consider any opportunities that would deliver “fast growth” in key segments such as investment, consumer and private banking. 

“It’s the same thing internationally, whenever opportunities arise which will help us have a stronger presence in the areas and target countries where the trade flows are and our businesses are, we will continue to consider,” he added. 

From Dubai to India 

Emirates NBD’s Nelson said markets with large populations and strong demographics were essential. 

Such factors shaped Emirates NBD’s two major buys so far – its purchase of BNP Paribas’s Egypt operations for $500 million in 2013 and its 15.48 billion lira acquisition of Turkey’s Denizbank from Russia’s Sberbank in 2019.

Reuters/Francis Mascarenhas

At the time, the Denizbank price was the equivalent of $2.78 billion, but would now be just $818.2 million following a precipitous decline in the Turkish lira, underlining the perils of currency exchange fluctuations. 

“When we’re looking to expand externally, we see where are our clients are going, where they’re investing, where the trade and capital flows from our core Gulf footprint,” Nelson told analysts. 

“India remains an attractive market, and it’s a market that obviously there’s huge capital and trade flows between the UAE and India. 

“As an organisation, we have run the slide rule over dozens of acquisitions over the last 10 years.”

It is likely Emirates NBD was one of the entities interested in a controlling stake in state-backed IDBI Bank last year, India’s Money Control website reported, citing identified sources.

“Asia, especially India and the Indian subcontinent, offers fairly significant growth potential, but it’s a very different market to the UAE,” added Al Ramz’s Halawi. 

“Buying a global bank could happen – currently some international banking networks have compelling valuations and the appetite from the UAE and GCC to invest during distressed times has been proven time and again.

“It would be quite a leap because such acquisitions are sizable. They’re complicated and bring a lot of uncertainties.”