DUBAI - Oman Arab Bank, a unit of Ominvest, and Alizz Islamic Bank are exploring a merger, the two banks said on Thursday, joining an increasing trend among Gulf banks to consolidate. Alizz Islamic said its chairman received a letter from the chairman of Oman Arab Bank requesting that the two banks explore the possibility of a strategic collaboration that may lead to an eventual merger of the two lenders.

Alizz, which has a market capitalisation of $200 million, said its board has agreed to proceed and explore this opportunity with Oman Arab Bank, it said in a statement.

Ominvest and Arab Bank Group are key shareholders of unlisted Oman Arab Bank.

Consolidation in the sector across the Gulf region has increased in the past two years as profit margins have been squeezed by lower government and consumer spending in the face of weak oil prices.

Saudi British Bank (SABB) and Alawwal Bank recently agreed a merger to create Saudi Arabia's third-biggest lender, in a $5 billion deal that marks the first major banking tie-up in the kingdom in two decades.  

(Reporting by Saeed Azhar; Editing by Biju Dwarakanath) ((; +971 44536787; Reuters Messaging: