(Bloomberg) — From Dubai’s Burj Khalifa to Kuwait’s Al Hamra Tower, Gulf economies built up their skylines in a hurry in the few years preceding the financial crisis. Now, as the price of the region’s most precious commodity languishes, a similarly frantic pace is on to merge some of the region’s banking and industrial behemoths.

Banks across the Gulf are leading a record wave of mergers and acquisitions as governments look for ways to stay competitive and battle slow growth. About a dozen lenders are involved in mergers or takeovers. The flow of deals has been gathering speed ever since the megamerger between two of Abu Dhabi’s largest banks in 2017 and the combination of three of the emirate’s investment firms that was completed last year.

In Saudi Arabia, the first bank merger in 20 years is underway, as well as what’s set to be the kingdom’s largest M&A deal: the acquisition of Saudi Basic Industries Corp. (Sabic) by Saudi Arabian Oil Co. (Saudi Aramco) from the country’s sovereign wealth fund. This follows Saudi International Petrochemical Co.’s agreement last year to acquire Sahara Petrochemical Co. in an all-share deal valued at about $2 billion.

Surging oil prices over more than a decade helped many Gulf states—which include the world’s biggest exporters of crude and liquefied natural gas—expand aggressively at home and abroad.

After crude prices nosedived in 2014, countries including the United Arab Emirates, Saudi Arabia, and Qatar pulled the plug on spending. Over the course of the first quarter of this year, the price of crude has settled at a level that’s barely high enough for Gulf Arab monarchies to balance their budgets.

Governments—which play a significant role in M&A decision-making in the region—have set this recent consolidation frenzy into motion to make the financial sector more competitive. Abu Dhabi, which sits on 6 percent of global oil reserves, has been particularly keen on consolidation.

While the 2014 oil crash “didn’t prompt M&A activity immediately, it did spark a broader appraisal of spending and profitability of partially and fully state-owned entities,” says Allison Wood, Middle East and North Africa analyst at Control Risks Group Holdings Ltd., a strategy firm. “It also made governments and companies more attuned to the potential longer-term benefits of merging with or acquiring other entities to give them an advantage in key markets.”

Overbanked

There’s almost no sector in the region that isn’t affected by oil. Most banks, for instance, are heavily reliant on government deposits, which have been dwindling in sync with crude prices. Lenders have also faced damped demand for credit and weakened loan performance as governments cut spending after oil’s slump.

Yet a bearish oil market isn’t the only driver behind this M&A spurt. The Gulf region is also heavily overbanked, with about 70 listed institutions serving a population of roughly 50 million, putting smaller lenders under pressure.

As a rough comparison, there are only about a dozen listed banks in the U.K., a country of about 65 million people. Most lenders in the Gulf Cooperation Council member nations are at least partly owned by arms of their national governments, making consolidation easier.

The restructuring is part of the GCC states’ larger plan to make their economies less dependent on crude as a source of long-term growth.

The recent merger mania in the U.A.E. banking sector follows a relatively quiet decade for such deals. The U.A.E.’s first bank merger, in 2007, brought together Emirates Bank International PJSC and National Bank of Dubai PJSC.

The combined entity, Emirates NBD, has more than trebled its profit since then, while net income has increased at a compound annual rate of 11 percent from 2008 to 2018 despite some turbulent years after the global financial crisis.

In 2017 the consolidation of Abu Dhabi’s largest lenders—First Gulf Bank and National Bank of Abu Dhabi—created the region’s second-largest bank, First Abu Dhabi Bank, and has since prompted a flurry of talks among competitors.

Abu Dhabi Commercial Bank is in the process of merging with Union National Bank and Al Hilal Bank. Abu Dhabi is considering combining Abu Dhabi Islamic Bank with First Abu Dhabi Bank to create the Middle East’s largest lender, according to people with knowledge of the matter who asked not to be identified because the discussions are private.

In Saudi Arabia, HSBC Holdings Plc’s local unit is close to acquiring Royal Bank of Scotland Group Plc’s local venture in a $5 billion stock deal, while the kingdom’s biggest lender, National Commercial Bank, started initial talks late last year with Riyad Bank for a merger. In Bahrain, Kuwait, and Oman, merger talks are also under way among banks.

“The catalyst for what we are seeing now was the impact of lower oil prices, which squeezed liquidity in the banking sector and put pressure on profitability,” says Redmond Ramsdale, head of GCC banks at Fitch Ratings. “The most obvious way to increase shareholder value is to create market leaders, or strong players in the market, who are in a better position to compete for deposits and find growth opportunities.”

Sovereign funds

Banks aren’t the only entities that are merging. Last year, Abu Dhabi combined Mubadala and the Abu Dhabi Investment Council to create a wealth fund with about $230 billion in assets, just a year after Mubadala merged with International Petroleum Investment Co., another government-backed investment firm.

After pushing back its much-anticipated initial public offering to 2021, Saudi Aramco agreed last month to buy 70 percent of petrochemical giant Sabic from the Public Investment Fund, in a deal worth about $70 billion. It would give the PIF, as the sovereign fund is known, the financial firepower it needs to carry out ambitious investment plans at home and abroad as Aramco’s own share sale stalls.

“We see globally, and certainly in the region, a pursuit of improved performance as the outlook turns less optimistic,” says Miguel Azevedo, Citigroup Inc.’s regional investment banking head. “We also see as quite possible that large industrial groups team up and potentially engage in M&A with other strategic players, always as a tool to improve performance in a more challenging economic environment.”

Growth outlook

While the price of oil has rallied about 25 percent this year through mid-March, the Gulf’s biggest economies remain a long way off the growth rates reached before the 2014 oil crash. Efforts by OPEC and its allies to curb a global glut mean they won’t benefit as much from an improving outlook for crude. Consumer demand also remains sluggish. Saudi Arabia suffered the deepest growth revision among major economies in the International Monetary Fund’s latest projections for this year, matched only by Germany.

Shareholder attitudes toward M&A are also changing. With each successful deal, governments and companies are becoming more comfortable with the idea of consolidation. “The recent track record of M&A transactions is creating a strong set of precedents in the region for regulators to lean on, and for potential merging companies to replicate,” says Karim Tannir, JPMorgan Chase & Co.’s head of investment banking in the Middle East and North Africa. “The more transactions the region will witness in the short to medium term, the easier it will be to encourage public and private companies to consider the M&A route as a path for growth.”