Dubai: The merger of Emirates Bank International (EBI) and National Bank of Dubai (NBD) will help the UAE take on foreign competition.
The move is also a clear sign of Dubai's intention to extend its reach as the region's financial hub.
The new bank will be the UAE's largest, and may, by assets, take the top rank in the region as well, according to analysts.
"I am one of the happiest people regarding this bold and great step, which is well-timed," said NBD Chairman Abdullah Mohammad Saleh.
"I was calling for the merger because the banking sector has not developed and has remained stagnant and has not kept pace with the progress in the country, much less global development."
The new bank will also be the one of the largest financial institutions in the Middle East and North Africa, according to Emirates Bank's chief manager for group affairs Sulaiman Hamid Al Mazroui.
"This merger is taking place with the blessing and encouragement of His Highness Shaikh Mohammad Bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai."
He said it is part of Du-bai's plan to become an important part of the region's economy and compete with international banks.
"The objective of this merger is to create a strong entity that will play a major role in the banking industry," Ahmad Humaid Al Tayer, chairman of EBI, told Gulf News.
The government of Dubai owns 76 per cent of EBI and has a 14 per cent share in NBD, in which major UAE business families own significant stakes.
Both Saleh and Al Tayer had seen ground for a merger long before yesterday's announcement.
Both had argued for such a merger in 2005, to cope with foreign competition.
"It will not be that easy for UAE banks to exist in this market once the banking sector is opened up, which is only a matter of time," Saleh told Gulf News that year.
Earlier in 2005, Al Tayer said it would be good for UAE banks to think in terms of merging in the wake of the WTO [World Trade Organisation] regime, which will prompt large foreign banks to establish a presence in the country.
"Given the size of the UAE banks, which are small compared even with some Saudi banks, they cannot take on the foreign banks effectively," he told Gulf News.
Today, opening up of the UAE banking sector to foreign banks and the impending creation of a single Gulf Cooperation Council (GCC) market are seen as providing further impetus to consolidation.
Raj Madha, a banking analyst at EFG Hermes, says every GCC country would like to have a "champion bank" that can effectively conduct cross-border operations.
"Emirates Bank has a very stretched balance sheet whereas National Bank of Dubai has a liquid balance sheet," he said.
Saleh said the merger will help the UAE compete in global markets and face economic challenges such as free trade agreements and the WTO.
Rushdi Seddiqi, global director of Dow Jones Islamic Market Index Group, also sees the merger as the beginning of consolidation in UAE banking sector.
But he added that there will be challenges in integrating the technologies and cultures of two large institutions.
"Other issues that need to be examined are about redundancies that will result from the merger," he said. "We need to see what safety nets are there for people who are going to be laid off."
Al Mazroui said officials from both banks will soon start discussing merger details, like a name for the entity and share price.
The process of integration is expected to be a long one.
"Some operations are easy to integrate while others may take months," Al Mazroui said.
The merger, which took many in the banking sector by surprise, was approved by the government and creates a yet-unnamed entity with Dh65 billion more in assets than the country's biggest lender - National Bank of Abu Dhabi.
Al Tayer will hold the post of board chairman of the new bank, and Saleh will become deputy chairman.
