Central Bank of Kuwait approves KFH-AUB merger

The consolidation will create the largest banking entity in Kuwait with assets of about $94 billion and the sixth-largest bank in the Gulf region.

The Central Bank of Kuwait has ‘conditionally’ approved the proposed merger between Kuwait Financial House (KFH) and Bahrain’s Ahli United Bank (AUB).

In a bourse filing, KFH stated that it has received the approval of CBK to acquire 100 per cent of the capital shares of AUB and such approval shall be conditional upon fulfilling certain requirements by the central bank.

KFH’s Board of Directors offered to acquire AUB in an all-share deal that is valued around $8.8 billion and the Kuwait-based lender 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 2019 and is going to be the first major cross-border tie-up in the 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.

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.

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 to 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.

Consolidation can help banks to develop their franchises, diversify their risk profiles and strengthen capital generation through earnings.

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.