Focus: Mergers and acquisitions

Merging for the Win

Jul. 9, 2021

Consolidation in the banking sector will help create a strong foundation, hopefully laying the groundwork for future growth.

Despite headwinds from persistent geopolitical tensions and the global COVID-19 pandemic, Qatar's banking sector is positioned to emerge from 2020 stronger than ever thanks, in part, to a renewed focus on M&As.

An important pillar of Qatari economy, the banking system is composed of 18 regulated banks, three financial institutions, and two investment companies, according to the Qatar Central Bank (QCB). Additionally, at the end of 2019, the Qatari Stock Exchange (QSE) listed 13 companies operating in the banking and financial services sectors with more than 35.5 million subscribed shares, including the biggest lender by assets in the GCC, Qatar National Bank, according to the Qatari Financial Markets Authority (QFMA). As each of these institutions weather the economic storm wrought by the pandemic, the government has deployed a number of supports.

As the extent of the economic disruptions began to take shape, the QCB took decisive action, rolling out aid programs aimed at supporting the private sector. In an interview with TBY, Rashid Bin Ali Al Mansoor, CEO of QSE, lauded the stimulus and efforts made by the government to support the sector and the broader economy, noting that the recent QAR 35-millon injection “brought a huge relief" and positively impacted trading volumes on the exchange.

Additional efforts have included reductions to the lending rate, deposit rate, and repurchase rate of between 50-100 basis points and guarantees to local banks totaling QAR3 billion, among others. Further, the banking sector has been one the key vehicles for delivering support to the entire Qatari economy, as evidenced by the six-month moratorium on private sector loans and other financial obligations. By taking such proactive steps, the sector has solidified its status within the Qatari economy and helped inject resilience into what might have been a truly beleaguered economy. The government and the banking sector have forged an important partnership as they work support commerce across the country, but as the landscape of the post-COVID world begins to take shape, many banking professionals are considering M&As as a way to ensure the long-term health and prosperity of the sector.

In an effort to shore up short and medium-term stability and provide top-line growth, M&As have surfaced as a particularly attractive strategy, as recent consolidation has shown. With the merger between Barwa Bank and International Bank of Qatar (IBQ) in 2019, the Qatari banking system inaugurated a new era of consolidation—an era some have seen as long overdue. With a population of approximately 2.8 million being served by nearly two-dozen local and international financial institutions, observers and analysts have long pointed to excess banking capacity as an issue ripe for correction. Though no mergers have been finalized subsequent to the Barwa-IBQ deal, Al Khaliji Commercial Bank and Masraf Al Rayan announced that they were in merger talks in June 2020. Nor is the growing attention being paid to M&As localized to only Qatar; the GCC, Europe, and North America have all seen increased appetite for M&As due to COVID-related deterioration in the finances of the banking sector. As M&As continue to shape the Qatari banking sector to an ever-greater degree, expect pressures related to overbanking to be ease.

As Qatar labors to diversify its economy, which has historically relied on its extensive natural gas and petroleum resources, SMEs and start-ups have become a central pillar in the nation's vision for its economic future, and these businesses have required particular attention during the pandemic. In early 2020, the Qatar Development Bank (QDB) announced it had reached QAR6.2 billion in outstanding loans to SMEs, with many of these businesses operating in the most important sectors of the Qatari economy.

In fact, one of the great ironies of the geopolitical tensions Qatar has confronted in recent years is that these pressures ensured that the country was in a better position to endure the economic challenges presented by COVID-19 than many of its neighbors.
As tensions increased, the government and private sector alike doubled down on their ambition to see SMEs become a more robust actor in the country's business network, and this support has accelerated growth. An even more consolidated banking sector will provide SMEs a more resilient, efficient and expanded capital base, laying the necessary groundwork for sustained growth in coming years.

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