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Mergers and acquisitions among Islamic banks in the GCC are expected to increase in the short to medium term as lenders seek competitive advantages to tap growth opportunities and build low-cost deposits, according to Fitch Ratings.
“The region is over-banked, and therefore we expect consolidation to continue in all countries,” Redmond Ramsdale, head of Middle East Bank Ratings and Islamic Banking at Fitch Ratings, told Zawya. He noted that Bahrain, with greater fragmentation in its banking sector, presents particular opportunities for M&A.
Mr Ramsdale said smaller and newer Islamic banks are more susceptible to M&A due to weaker franchises, pricing power, higher funding costs and thinner capital buffers.
“Nevertheless, a lot of historic M&A has been about creating new Islamic national or regional champions, as with Kuwait Finance House’s acquisition of Ahli United Bank. We would expect this to continue to be the case,” he added.
Kuwait Finance House’s $11.6 billion acquisition of Bahrain-based Ahli United Bank in 2022, which resulted in the conversion of AUB and its subsidiaries into Sharia-compliant entities, was cited as an example of creating such a champion.
Mr Ramsdale suggested that further consolidation among Islamic banks in 2025 could be enhanced by weaker operating conditions amid higher market uncertainty and lower oil prices, as banks look to consolidate positions and build economies of scale.
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