Kuwait Finance House’s (KFH) Board of Directors have offered to acquire Bahrain’s Ahli United Bank (AUB) in an all-share deal that is valued at about $8.8 billion.
KFH plans to issue one share for every 2.326 shares of AUB, the banks’ advisers had recommended the same swap ratio.
The KFH-AUB merger deal was formalised in January and it is going to be the first major cross-border tie-up in the Gulf region in recent years.
Lower oil prices over the past five years are forcing Gulf lenders to consolidate for scale and to better compete in a crowded market. Subdued credit growth, competition for deposits, higher cost of funds and deteriorating asset quality are driving consolidation in the regional banking sector.
In the UAE, Abu Dhabi Commercial Bank merged with Union National Bank and the combined entity acquired Al Hilal Bank, creating a banking group with AED 423 billion in assets in May 2019.
Additionally, Dubai Islamic Bank and Noor Bank are also exploring the possibility of a merger, which is expected create a Shari’ah compliant lender with AED 277 billion ($75 billion) in assets. The Investment Corporation of Dubai is the largest shareholder in DIB with a 28 per cent stake and it is also one of the biggest investors in Noor Bank.
S&P Global Ratings said that given the overbanked nature of some GCC banking systems, further consolidation could help improve banks' performance and financial stability hence a new wave of M&A motivated by purely economic reasons could follow, but it may take longer to be realised.
Similarly, in Saudi Arabia, National Commercial Bank is in the process of merging with Riyad Bank to create the Gulf’s third-largest lender with $193 billion in assets.
The Kuwait lender emphasised that the final decisions are subject to the approval of the general assemblies of both banks, the central banks and the relevant regulatory bodies in Kuwait and Bahrain.
HSBC Holdings and Credit Suisse Group were advising KFH and AUB on the talks.
Consolidation can help banks to develop their franchises, diversify their risk profiles and strengthen capital generation through earnings.