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Top UAE banks confirm merger talks, shares soar

Xinhua, June 19, 2016 Adjust font size:

The second and third biggest lenders of the United Arab Emirates (UAE) by assets, the National Bank of Abu Dhabi (NBAD) and FGB, confirmed on Sunday that they are in talks to merge, sending share prices of both banks up.

In a joint filing to the Abu Dhabi Securities Exchange (ADX), they said "the NBAD and FGB have commenced discussions regarding the possibility of a merger of the two banks or a combination of the two businesses."

The NBAD shares surged 15 percent, the maximum increase possible, to close at 9.20 dirham (2.5 dollars), a three-month high. FGB shares, on the other hand, gained 11.49 percent to close at 13.10 dirham (3.56 dollars).

Both lenders are partly state-controlled by the government of Abu Dhabi, the UAE capital emirate which harbors seven percent of the world's known oil reserves.

The NBAD has one of the highest ratings among banks in the region and FGB could form a new lender with combined assets worth 170 billion dollars, according to the statement.

If both banks go together, it would mark the first major financial merger in the United Arab Emirates (UAE) since Emirates Bank International and National Bank of Dubai merged in 2007 to create Emirates NBD in Dubai, currently the first lender in the Gulf Arab state in relation to assets.

"Each bank has formed a Working Group made up of senior executive management to review the commercial potential along with any legal and structural aspects of a merger or combination," read the written briefing to the ADX.

The confirmation of merger talks lifted also the prices of other banking shares listed on ADX, such as Union National Bank (up 6.96 percent), Abu Dhabi Commercial Bank (up 6.71 percent) and Abu Dhabi Islamic Bank (up 4.56 percent).

The UAE is considered to be an "overbanked" market as the country with a total population of 10 million people has 23 local banks and 28 licensed foreign lenders, according to the UAE central bank in Abu Dhabi.

In the wake of the oil prices slump, bank profits have become under pressure. NBAD reported in April its profit in the first three months of 2016 has fallen 11 percent year on year to 1.27 billion dirham (346 million dollars), while FGB reported a 6.33 percent drop in first quarter net income to hit 1.33 billion dirham (362 million dollars). Endit