The National Bank of Bahrain, a majority government-owned lender, is considering making a voluntary offer for issued shares of Bahrain Islamic Bank, a tie-up that could create a lender with $11.5 billion in assets.
NBB, which in August said it was in talks to increase its stake in the Sharia-compliant lender to 43.5 per cent from 29.1 per cent, has provided Bahrain Islamic Bank with “a non-binding notice of potential interest", it said on Monday in a statement to the Bahrain Bourse, where its shares are listed.
“The potential voluntary offer is subject to a number of items, which include satisfactory conclusion of its due diligence investigations and internal pricing assessment as well as receipt of all necessary regulatory, board and shareholder approvals,” NBB said.
The lender started initial discussions with Islamic Development Bank based in Jeddah, to acquire its 14.4 per cent shareholding in Bahrain Islamic Bank.
Gulf banks are increasingly looking at consolidation in a bid to gain scale and cope with tougher operating conditions as lower oil prices in the past three years squeezed their profit margins. Regional banks are set to see stronger performance this year as macroeconomic conditions improve and demand for credit grows, according to analysts and reports by rating agencies Moody’s Investors Service and S&P Global Ratings.
NBB’s move follows merger talks between Omani lenders Bank Dhofar and National Bank of Oman to create an entity with $20 billion in combined assets. The merged entirty will account for 25 per cent of the sultanate's aggregate banking assets and loans market, EFG Hermes said in a research note in August.
In May, Muscat-listed Alizz Islamic Bank and Oman Arab Bank, a subsidiary of Omani conglomerate Ominvest, revealed their plans to explore the possibility of combining their balance sheets. That came just a week after subsidiaries of HSBC and Royal Bank of Scotland in Saudi Arabia reached an initial agreement on the terms of a possible merger.
Kuwait Finance House is also seeking a potential merger with Bahrain's Ahli United Bank, reviving earlier talks for a deal that would create a new Islamic lender worth $92bn in combined assets. If the KFH and AUB merger is successful, it will be the second big-ticket bank deal in the GCC in recent months.
The National Bank of Abu Dhabi and First Gulf Bank merged to create First Abu Dhabi Bank last year.
