Gulf's banking sector ripe for wave of mergers as profitability declines | The National
A new wave of mergers and acquisitions could take place within the GCC's banking sector as profit margins are pressured due to pandemic-induced headwinds, according to S&P Global Ratings.
The need for recapitalisation as provisions for bad loans rise and the asset quality deteriorates also supports the case for the consolidation of financial institutions in the region, Mohamed Damak, senior director for financial institutions ratings, said.
“Ultimately, lower profitability could start a new wave of M&A, and we think this wave, if it starts, will be different from what we have been observing so far,” Mr Damak told a webinar on Wednesday.
“It might involve consolidation across different GCC countries, or consolidation across different emirates here [in the UAE].”
Profits for most regional lenders, like their international peers, shrunk last year as they proactively allocated funds to cover potential loan losses. Loan book growth has also slowed and margins are under pressure amid historically low interest rates.
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