With around 50 licensed institutions, the UAE is overbanked. It may seem counter-intuitive, but such a fragmented landscape does not encourage the kind of competition that benefits consumers. A smaller number of larger and stronger banks will actually support the wider sector, lower costs, improve profitability and encourage greater innovation. As the UAE economy rapidly diversifies in preparation for a post-oil future, a robust financial sector to support this journey is vital. Without one, the dream of long-term prosperity becomes much harder to fulfil. That aim drew closer this week, with the announcement of the three-way merger between Abu Dhabi Commercial Bank (ADCB), Union National Bank and the Islamic lender Al Hilal, to create a financial powerhouse with assets worth $114 billion (Dh420bn). And with greater economies of scale and more liquidity, all of its customers can look forward to better products and smoother service.
But the real benefit of this three-way consolidation will be economy-wide. The introduction of another large financial institution will support lending to businesses and encourage more commercial and development projects. As the fifth-largest bank in the Gulf, the new group, called ADCB, will be able to compete for more business at home, spurring its rivals on. Across the region, economies are looking for greater efficiencies following the 2016 oil price crash. In an era of technological disruption, there is also a unique opportunity to transform the way businesses are run. As Sheikh Mohamed bin Zayed, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the Armed Forces, said, this merger "is in line with the economic vision of the UAE and creates a strong banking group that has human capital and financial capabilities that will bolster the competitiveness of the economy and its future outlook".
At the heart of banking is serving the customer. The consolidation of these institutions and the evolution that they will experience as a result will ultimately benefit their customers. Any concerns they may have will likely be assuaged by frequent and transparent communication throughout the merger process.
But this merger will certainly be a boon for the UAE’s wider corporate scene, bringing immense financing opportunities for technology, infrastructure and other sectors. In 2017, the National Bank of Abu Dhabi and First Gulf Bank merged, and First Abu Dhabi Bank was born. It now sits proudly as the country’s biggest lender, followed by Emirates NBD. Hot on their heels will be the ADCB group, when this merger is completed. With vast scale and deep knowledge, it will set in motion an exciting era for the UAE’s banks and the wider economy as a whole.
