National Bank of Bahrain in talks to increase its stake in BIB

National Bank of Bahrain is in talks to buy Islamic Development Bank’s entire stake in the Sharia-compliant Bahrain Islamic Bank as more Arabian Gulf lenders pursue mergers and acquisitions to gain scale.

NBB, a majority government-owned commercial lender, has entered into initial discussions with IDB, a Jeddah-based multilateral development bank, to acquire its 14.4 per cent shareholding in BIB, it said on Thursday in a regulatory filing to the Bahrain bourse, where its shares are traded. The deal, which is subject to regulatory and board approvals, will increase NBB’s current stake in BIB from 29.1 per cent to 43.5 per cent, it said.

“A letter of intent has been signed between NBB and IDB for further mutual exploration of the potential acquisition terms and pricing,” NBB said.

NBB said a transaction advisor has been appointed to assist with preliminary investigations and due diligence for the proposed acquisition of the bank, however, this may not necessarily result into a binding agreement between the two parties. The lender did not disclose the name of the financial adviser or the expected timeline for the deal.

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Gulf banks are increasingly looking to merge in a bid to gain scale and cope with tougher operating conditions as lower oil prices in the past three years have squeezed their profit margins. Regional banks are set to see a 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 lender Bank Dhofar and National Bank of Oman to create an entity with $20 billion in combined assets. The merged lender will account for 25 per cent of the sultanate's aggregate banking assets and loans market, EFG-Hermes said in a research note earlier this month.

Muscat-listed Alizz Islamic Bank and Oman Arab Bank, a subsidiary of Omani conglomerate Ominvest, in May 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 combination deal in the GCC in recent months.

The National Bank of Abu Dhabi and the First Gulf Bank merged to create First Abu Dhabi Bank last year, now a $175bn powerhouse in the UAE.