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JEDDAH: A proposed merger between three Qatari banks — Masraf Al-Rayan, Barwa Bank and International Bank of Qatar — if successfully completed, would create the largest Islamic bank and second-largest bank in Qatar, and would result in a more balanced competitive environment in Qatar’s fragmented banking system, said a report issued by Moody’s Investors Service.
The merger is currently at due diligence stage and will be subject to approval by the relevant authorities and the three banks’ shareholders. The report notes that there would likely be considerable integration challenges with this merger.
“Currently in Qatar, 18 banks serve a population of only 2.6 million, and Qatar National Bank — the largest bank in the Gulf Cooperation Council (GCC) — dominates with a market share of more than 40 percent of domestic assets,” said Nitish Bhojnagarwala, assistant vice president at Moody’s.
“The merged entity between the three banks would help to rebalance the Qatari banking sector,” he said.
The report said that upon the successful completion of the merger, it would create an entity with total assets amounting to around QAR173 billion ($48 billion) and a market share of around 14 percent.
“The combined entity would be the largest Islamic bank in Qatar (ahead of Qatar Islamic Bank) and the fourth-largest Islamic bank in the Gulf Cooperation Council (GCC),” adds Bhojnagarwala.
Moody’s expects the enhanced franchise of the merged entity to benefit from the growth of Islamic assets in the GCC.
“Islamic banking asset growth has outpaced conventional banking in Qatar, as demonstrated by a 21 percent compound annual growth rate of loans for Islamic banks between 2011 and 2016 compared with 14 percent for the conventional banks,” explains Bhojnagarwala.
Moody’s expects, however, that there would be considerable integration challenges with this merger, which will be assessed in the event that the deal is agreed.
At that time, the rating agency will also assess how the structure and strategy of the merged entity could alter the group’s overall risk profile, both in terms of solvency (capital and profitability) and liquidity (liquid assets and access to funding).