Mergers overdue in UAE banking sector

How many local banks does your country have? Hong Kong has 23 licensed banks and Singapore six -- run-of-the-mill numbers for countries with around seven million and five million residents apiece.

Shift gears to the Middle East. The United Arab Emirates (UAE), the financial and logistics hub of the region, has more than 50 banks. Admittedly half of these are locally incorporated subsidiaries of foreign banks, but that still leaves around 25 local banks -- both conventional and Islamic -- to serve the country's 4.5 million residents.

"That to us is an over-banked market," said Kamran Butt, director and head of Middle East equity research for Credit Suisse Private Banking in Dubai. "We definitely expect consolidation in the banking sector to be kick-started in 2009 on the back of, one, a declining earnings pattern and, two, the fact that it's a highly competitive environment and everyone is chasing fewer customers."

The UAE's banking sector was ripe for consolidation to start with and the economic downturn is making the need even more obvious.