DUBAI - Dubai Islamic Bank, the United Arab Emirates' largest sharia-compliant bank, is in talks with shareholders of unlisted Dubai-based Noor Bank over a possible acquisition of the lender, three sources said on Monday.
"The talks are at a shareholder level," said one of the sources, who was familiar the discussions.
Dubai's sovereign investment group, Investment Corp of Dubai (ICD) - a common shareholder in the two banks - will likely make a decision on any successful deal between DIB and Noor bank, a second source said.
ICD owns 28.37 percent of DIB and more than 22.7 percent of Noor Bank.
Other Noor Bank shareholders include members of the ruling family of Dubai and a group of Dubai government nominated UAE nationals.
Bloomberg reported late Sunday the talks were taking place, citing people with knowledge of the discussions.
DIB and Noor bank said in separate statements that they do not comment on market speculation. ICD wasn't immediately available to comment.
The latest talks come during a wave of mergers in the UAE's banking sector as tougher competition and regulatory standards coupled with a slowing economy and a slide in house prices.
"We believe that consolidation would be positive for UAE banks from a return generation and cost perspective," Goldman Sachs said in a note.
"This is especially true given the fragmented nature of the market."
After two of the UAE's biggest lenders, First Gulf Bank and National Bank of Abu Dhabi, merged in 2017 to become First Abu Dhabi BankFAB.AD , three more lenders have agreed to combine, led by Abu Dhabi Commercial Bank.
Bank consolidation has also picked up in other Gulf countries, notably Saudi Arabia, Kuwait and Bahrain as profit margins have been squeezed by lower government and consumer spending in the face of volatile oil prices.
UAE has 50 commercial banks including 22 local lenders, a number viewed as too high in a country of about 9.5 million people. Saudi Arabia, which has a population of 32 million, has 12 banks and is set to lose two of those if announced mergers are successfully concluded.
(Reporting by Saeed Azhar and Davide Barbuscia; additional reporting by Stanley Carvalho in Abu Dhabi; Editing by Kirsten Donovan) ((email@example.com))