x Abu Dhabi, UAEThursday 18 January 2018

Banking stocks soar on consolidation rumours

Speculation of ADCB and NBAD merger lifts their shares, while optimism over the US bailout mounts.

Banking stocks soared yesterday after consolidation rumours and a possible bailout agreement in Washington boosted market confidence. Following months of falling liquidity through lower deposits and rising interbank interest rates, speculation that Abu Dhabi Commercial Bank (ADCB) and National Bank of Abu Dhabi (NBAD) were to join forces lifted their shares, which closed up 6.91 per cent and 4.29 per cent respectively.

Senior executives at both banks, however, said they were unaware of any possible merger talks. "We discussed [the rumours] at our management meeting and we received no instructions from the board or the higher authorities," said Abdullah Salah Abdul Rahim, the chief operating officer of NBAD. "We have no information at all about a merger." Eirvin Knox, the chief executive of ADCB, said: "I have no information on this. I am not aware of anything that is happening."

However, traders said some form of consolidation now looked inevitable since the credit crunch had begun to affect the GCC. Mortgage lending is being cut, the Emirates interbank offered rate (Eibor) has been increasing since June and the Central Bank has had to step in to provide banks with a Dh50 billion (US$13.6bn) loan - all signs of a severe credit crunch. Yesterday, the Eibor increased to 3.96 per cent, compared to 3.76 per cent last Thursday, a huge increase that takes it to the highest level since early this year.

"There are some rumours that the Abu Dhabi market will witness some mergers and acquisitions in the banking and real estate sectors," said Ahmed Hamdy, the senior relationship manager at Prime Emirates. "ADCB is one of the banks likely to be involved," he said. The rumours boosted the entire banking sector: Emirates NBD rose 4.79 per cent, Dubai Islamic Bank 5.63 per cent and First Gulf Bank 2.17 per cent. The banking indexes on the Dubai Financial Market and Abu Dhabi Securities Exchange rose by 3.46 and 2.60 per cent respectively.

* With Reuters afoxwell@thenational.ae