Mubasher: Merger and acquisition (M&A) activity in the GCC region, particularly in the banking sector, is seen as "beneficial" for the sector, according to Moody's Investors Service.

In its newest report released on Tuesday, the ratings agency explains that such activity "will ease overcapacity and boost profitability through synergies and increased pricing power."

In the past 12 months, the GCC's "overcrowded banking sector" has witnessed a series of M&A deals and announcements, coinciding with wavering oil prices, which hit oil-reliant government budgets, and with slowing economic growth.

"Slow growth and subdued credit demand in the region is one of the biggest drivers of consolidation. This has intensified competition for depositors and borrowers, dampening profits at GCC banks," commented Ashraf Madani, a vice president and senior analyst at Moody's.

According to Moody's, the GCC's banking sector includes several lenders which serve small populations, thereby "driving intense competition and aggressive pricing policies," it said in its newest report on the sector titled "Banking - Gulf Cooperation Council: Consolidation among GCC banks will boost profitability."

The Sultanate of Oman for example has around 20 licensed banks serving a population of 4.6 million people. In that heavily-competitive market, two possible mergers have been announced. Meanwhile, Saudi Arabia, which has close to 33 million people, has 27 banks only. In addition, talks have emerged between the National Commercial Bank (NCB) and Riyad Bank over a potential merger that would result in an entity with an asset base of $182 billion.

On the long-term, "consolidation will help stem rising funding costs and improve
profitability," Moody's projected, noting that despite integrating challenges in the early stages of M&As, merged banks will see their market share rise. They will also have "better pricing power and cost synergies," Moody's concluded.