Triple threat: KFH's potential tie-up with Bahrain's AUB needs three-phase talks

Banks need to weigh up fair exchange for shares, complete due diligence and agree on future business plan

  
Image used for illustrative purpose. Kuwait, elevated view of the modern city skyline and central business district.

Image used for illustrative purpose. Kuwait, elevated view of the modern city skyline and central business district.

Getty Images/Gavin Hellier

The chairman of Kuwait Finance House (KFH) has said that its potential tie-up with Bahrain's Ahli United Bank will need to overcome three rounds of hurdles if a deal is to be ironed out.

In a press release issued on Sunday evening, Hamad Abdulmohsen Al- Marzouq was attributed as saying that that the financial and economic circumstances of the region necessitated thinking about creating larger financial institutions with the ability to withstand shocks as he said the bank was weighing up a strategic option of a merger with Bahrain's Ahli United Bank.

KFH said in its statement that a tie-up would create one of the largest Islamic banks in the Middle East, while Al Marzouq was attributed as saying potential benefits of the deal were improved profitability, asset quality and risk diversification.

KFH said that a potential deal process would have three phases, with the first being an "evaluation study by international consultants" in order to weigh up a fair exchange ratio for shareholders of each bank, and the second would involve a due diligence process, in which the necessary regulators and the central banks of both countries would be contacted for approvals.

A third and final phase would then involve the two banks agreeing on a future business plan for the new banking entity.

“The final approvals for the acquisition will be subject to the approval of the Central Bank of Kuwait and other regulatory authorities, as well as the General Assemblies of the two banks,” Al-Marzouq was quoted as saying in the release.

On Sunday, Reuters reported that HSBC and Credit Suisse had been appointed to offer advice on potential merger talks between the two banks.

Also on Sunday, Ahli United Bank posted results for the first six months of 2018, in which it reported a 14.8 percent growth in net profit attributable to its shareholders of $354.7 million, on the back of a 12.3 percent increase in net interest income to $467.2 million.

In a press statement accompanying the results, AUB's chairman, Hamad Al-Humaidhi, said that an agreement signed with Kuwait Finance House "provides a non-binding framework to explore the establishment, in a structured manner, of a major regional banking institution capable of competing more effectively in its existing and new potential markets”.

A report produced by KPMG in May on the banking sector in the Gulf Cooperation Council stated that the region's banks had performed well in 2017, reporting asset growth of 4.4 percent and overall net profit increases of 6.6 percent year-on-year as non-performing loans ratios declined. In Kuwait, banks' combined net profits grew by 8.9 percent, but non-performing loans grew by 7.7 percent. In Bahrain, banks' combined profits fell by 4.4 percent, despite a 5.6 percent growth in assets. It also argued that changing regulations in the kingdom was also "exerting pressure on small and medium-sized banks, which could result in some consolidation".

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(Writing by Michael Fahy; Editing by Shane McGinley)

(michael.fahy@thomsonreuters.com)

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