In July Kuwait Finance House invited Bahrain’s Ahli United Bank to begin a due diligence process for a potential merger of the two financial institutions, creating Kuwait’s biggest Islamic lender.
If the merger materializes, it could create both Kuwait and Bahrain’s biggest lender with $92 billion in assets, becoming the sixth biggest bank in the Gulf.
Following their initial talks, the banks signed a Memorandum of Association (MoU) and Non-Disclosure Agreement (NOC) on July 22, appointing HSBC and Credit Suisse to conduct the valuation studies in order to propose a fair price and finalize the exchange of shares ratio.
Both the banks initially entered into merger talks in July 2017, however pricing hindered further proceedings. Listed on the Kuwait stock exchange, Kuwait Finance House recorded net profits of $377.85 million, while Ahli United Bank reported net profits of $357.4 million in the first half (H1) of 2018.
Kuwait Finance House and Ahli United Bank merger talks come days after Saudi British Bank and Alawwal Bank agreed to a $5 billion merger deal to create the Kingdom's third-largest lender in May. It was preceded by a mega merger of UAE’s banking giants NBAD and FGB to form First Abu Dhabi Bank.
The same month Oman Arab Bank and Alizz Islamic Bank announced that the banks are exploring a potential merger, adding to the growing consolidation trend that’s playing out among Gulf banks.
According to a recent report by multinational law firm Baker McKenzie, the total value of mergers and acquisitions (M&A) rose by 62% in the Middle East during the first six months of 2018.
The aggregate value of all Middle East M&A activity jumped from $15.7 billion in H1 2017 to $25.4 billion in the same period this year, with deal volume being steady as last year. Although UAE dominated the M&As, cross-border deals saw a surge in both value and volume over the first half of 2018.
Lower oil prices over the past four years have been one major reason that have pushed lenders for consolidation.
In addition, the debt-laden Bahrain would only benefit from the potential merger of Ahli United Bank as the country awaits financial support from neighboring nations to help reduce debts and increase foreign exchange reserves.