Abu Dhabi – Mubasher: The potential merger between Abu Dhabi Commercial Bank (ADCB) and Union National Bank (UNB) with privately-owned Al Hilal Bank is expected to be credit positive for UAE banks, according to a report by released Moody’s Investors Service on Monday said.

Earlier in September, Bloomberg reported that the three banks were in talks to close a merger that could create a huge lender with total assets of $110 billion.

"The merger of ADCB, UNB and AHB would contribute to consolidation of the over-banked UAE banking sector, which will increase banks’ pricing power, reduce pressure on their funding cost and increase their ability to meet sizeable investments," Moody's said.

Pending approvals by the banks' boards of directors, shareholders, and regulators, the projected merger is expected to increase banks’ pricing power, reduce funding costs, and boost liquidity, the report found.

“System consolidation will also increase banks’ scale and revenue base, improving their ability to meet sizeable investments related to compliance, digitalisation and new accounting standards such as IFRS9,” Moody’s said.

There are 60 banks in the UAE, serving a population of around 9 million. This has increased competition in recent years particular as lending opportunities have declined following a slowdown in economic and credit growth and amid lower oil prices.

“The stronger competition also reflects lenders’ focus on high-quality borrowers given elevated delinquencies among small and medium companies and mid-sized corporates amid a soft environment, along with the introduction of a credit bureau,” the report added.