One of the most significant shifts in the financial landscape, consolidation among GCC banks may gain momentum if lower oil prices intensify competitive pressures in the region, Fitch Ratings reports. Prolonged oil price weakness and subdued global demand could strain banking environments across the GCC, dampening profitability and prompting mergers and acquisitions as institutions aim to diversify income streams and scale operations. Smaller banks—with more limited market presence, elevated funding costs, and thinner capital cushions—could emerge as prime acquisition targets.
Most GCC banking sectors are ‘overbanked’: characterised by a large number of banks relative to population size, with over 150 banks operating across the region, including 75 domestic commercial banks. Many GCC banks have shareholders in common, which could help to bring about M&A in some cases. However, many of the common shareholders are not sufficiently large to wield significant influence.
Bahrain appears the most likely market for consolidation as it is highly overbanked, with generally weaker banking sector profitability and growth prospects. The Bahraini authorities seem supportive of consolidation, but relatively few banks have common shareholders, which could hinder deals.
Oman and Kuwait are also overbanked with modest banking sector profitability. However, consolidation pressures in Kuwait may ease if economic reforms lead to stronger growth and better profitability prospects, and Oman’s banking sector could expand given its relatively low banking sector assets/GDP ratio.
In the UAE, some smaller banks with weaker franchises and revenue generation may need strategic mergers to sustain their operations, especially if profitability comes under pressure for a sustained period. Again, strong growth prospects may limit this need in the short term.
