Bank Dhofar-NBO tie up could create lender with $20bln asset base

Analysts say larger bank could benefit from tie-up with more efficient operator

A general view of the National Bank of Oman in Muscat. Image used for illustrative purpose.

A general view of the National Bank of Oman in Muscat. Image used for illustrative purpose.


A merger between Bank Dhofar and the National Bank of Oman offers the chance for one larger lender to combine with a more efficient one, bringing benefits to both, according to analysts.

The two banks announced in joint statements on Monday afternoon that their boards had met on Sunday and had resolved to begin talks "to explore the possibility of a merger between the two entities".

"If the two banks merge, then the combined entity will be the second-largest bank of Oman, with a total asset base of 7.68 billion Oman rials (~$20 billions), compared to the largest bank, Bank Muscat, which has total assets worth 11.54 billion rials, as at H1 2018," Hettish Karmani, head of research at Muscat-based U-Capital said in an emailed statement to Zawya.

Bank Dhofar is already the second-biggest bank in Oman in terms of its market capitalisation, with a value of 395 million Oman rials ($1 billion). National Bank of Oman is valued at 273.2 million rials ($710.5 million). Combined, the pair would still trail market leader Bank Muscat both in terms of the size of assets and market capitalisation. Bank Muscat is currently valued at over 1 billion rials ($2.79 billion).

Investors were cautiously optimistic following the announcement, with National Bank of Oman's shares up almost 2.4 percent in trading on Tuesday, and Bank Dhofar's shares climbing by 1.85 percent.

Karmani said that both banks have common shareholders, with the four of the country's state-owned funds - the Civil Services Pension Fund, Ministry of Defense Pension Fund, State General Reserve Fund and Public Authority for Social Insurance - holding a combined 28 percent of Bank Dhofar and 29 percent of National Bank of Oman.

Issam Kassabieh, senior financial analyst at Menacorp in Dubai, compared the proposed merger to the recent tie-up between National Bank of Abu Dhabi and First Gulf Bank last year to create First Abu Dhabi Bank.

"You have a bank large in asset size (Bank Dhofar) which is limited by its high operating costs, and you have National Bank of Oman which is smaller in terms of asset size, but is quite profitable," he said in an emailed response to Zawya. Kassabieh added National Bank of Oman had demonstrated profitability through efficiencies in operating costs, especially in controlling employee costs.

In a separate note issued on Tuesday, Karmani said that National Bank of Oman's greater efficiency would help to boost the combined entity's return on equity.

He also said it would "likely be able to finance larger projects in lieu of a larger capital base".

The announcement is the latest in a series of proposed banking mergers around the region in a sector that analysts have previously argued has been overbanked, and is the second to be announced in Oman within three months, following Oman Arab Bank and Alizz Islamic Bank's revelation that they were in talks in May.

Last month, Islamic lender Kuwait Finance House announced that it had entered talks regarding a potential merger with Bahrain's Ahli United Bank and in May Saudi Arabia British Bank (which is part owned by HSBC Holdings) said it had agreed a $5 billion merger with Alawwal Bank (in which Royal Bank of Scotland holds a substantial stake).

However, several other potential tie-ups have floundered after long negotiations. Talks regarding a three-way tie-up between Qatari lenders Barwa Bank, International Bank of Qatar and Islamic lender Masraf Al Rayan ended in June following 18 months of negotiations.

Indeed, Bank Dhofar itself had also attempted a merger with Oman's fourth-biggest bank, Bank Sohar, but the two firms called off talks two years ago following three years of talks after failing to agree terms.

(Reporting by Michael Fahy; Editing by Shane McGinley)

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