PwC: Banking M&A deals on the rise in the Middle East amid global decline

High oil prices and the associated flow of money through the Middle East economy have helped banks in some parts of the Middle East to maintain high levels of liquidity. Not with standing that some parts of the Middle East continue to work through the overhang of the real estate boom, confidence on the part of the Gulf banks has partly driven the recentincrease in banking M&A in the region. PwC research shows that the Middle East recorded a substantial increase in banking M&A deal values from USD1.5bn in 2011 to nearly USD7bn in 2012, resulting from six transactions.

Banking deals have consistently accounted for the majority of financial services M&A globally over the past decade. While the total number and value of global banking M&A transactions have declined steadily over the past few years, the Middle East stood out as an exception in 2012.

Middle Eastern banks’ appetite for outbound M&A has been selective and led by Qatari institutions. According to PwC’s latest thought leadership publication‘The Journal, Brave new world: New frontiers in banking M&A’,there is continued interest in nearby growth markets suchas Turkey, European private banking assets and around the growing role of Islamic Banking in Central Asia and the Far East.The market changes in the Middle East have also created some opportunities for more liquid institutions.

“The six banking M&A deals that took place in the Middle East in 2012 included multiple landmark overseas investments by Gulf based banks, notably in Egypt, as certain European players confirmed their retrenchment from emerging and non-core markets. While the increase in the value of deals in the Middle East from USD 1.5bn to nearly USD 7bn was in part attributable to broader restructuring efforts in the region, it also points to confidence on the part of certain Middle Eastern banks to invest beyond their domestic markets”, said Hani Ashkar, Middle East Deals Leader at PwC.

High growth economies such as the Middle East are now home to some of the world's largest and increasingly influential banks. A far broader range of institutions are initiating transactions than in the years leading up to the financial crisis. This is in line with the trend for banks from high growth economies becoming more active acquirers, both in their home markets and abroad, while also establishing their own approaches including partnerships and distribution agreements.

"A number of the Middle East banks rank among the most stable and well capitalised banks globally. The continuing challenges that confront the predominantly mature market international banks, present the highly liquid Middle East banks with a unique opportunity for selective diversification beyond their own domestic markets. Not with standing the political uncertainties that continue to buffet parts of the Middle East, a disciplined approach to vetting these opportunities today has the potential to deliver important strategic advantage for tomorrow,” added Raymond Hurley, Director responsible for FS Deals in PwC Middle East.