A proposed merger between three Qatari banks – Masraf Al Rayan, Barwa Bank and International Bank of Qatar – would help “rebalance” the banking sector in the country, a report by Moody’s Investors Service has said.
The merger is currently at due diligence stage and will be subject to approval by the relevant authorities and the three banks’ shareholders.
If successful, it will create the largest Islamic bank and second largest lender in Qatar.
“The merged entity between Masraf Al Rayan, Barwa Bank and International Bank of Qatar would help to rebalance the Qatari banking sector,” said Nitish Bhojnagarwala, assistant vice president at Moody’s.
“Currently in Qatar, 18 banks serve a population of only 2.6 million, and Qatar National Bank – the largest bank in the GCC – dominates with a market share of more than 40 per cent of domestic assets.”
The new merger, if agreed, would create an entity with total assets amounting to around QAR173bn ($48bn) and a market share of around 14 per cent.
Moody’s expects the new entity to also specifically benefit from the growth of the Islamic banking industry in the GCC.
“The combined entity would be the largest Islamic bank in Qatar (ahead of Qatar Islamic Bank) and the fourth-largest Islamic bank in the GCC,” said Bhojnagarwala.
“Islamic banking asset growth has outpaced conventional banking in Qatar, as demonstrated by a 21 per cent compound annual growth rate of loans for Islamic banks between 2011 and 2016 compared with 14 per cent for the conventional banks,” he added.
However, Moody’s also noted that there would be “considerable integration” challenges with the merger. The report said it would elaborate once the deal was confirmed.
The GCC is witnessing a consolidation in the banking sector, with the two largest lenders in Abu Dhabi also currently preparing to merge.
National Bank of Abu Dhabi (NBAD) and First Gulf Bank (FGB) will officially merge on April 1, with trading of the new shares set to begin from April 2.
The merger of the two banks, first announced in July 2016, is expected to create one of the largest banks in the Middle East.