DUBAI • Dubai Islamic Bank PJSC, the United Arab Emirates’ (UAE) biggest Islamic lender, is considering buying its smaller rival Noor Bank PJSC, people with knowledge of the talks said.
The bank has held preliminary discussions with Dubai-based Noor Bank’s shareholders, said the people, asking not to be identified because the information is private.
Discussions are at an early stage and may not lead to a deal. The acquisition would create a lender with 275 billion dirhams (RM307.5 billion) in assets.
The Middle East’s financial services industry is witnessing a wave of consolidation as banks seek ways to improve competitiveness and boost capital amid slowing economic growth.
Abu Dhabi is in the process of merging three of its banks after combining two of its biggest lenders in 2017. Banks in Saudi Arabia, Kuwait and Bahrain are holding merger talks as well.
“This would undoubtedly be good for Dubai Islamic Bank,” Chiro Ghosh, an analyst at Bahrain-based investment bank SICO BSC, said by phone.
“Dubai Islamic Bank has reduced its dividend this year, so their capital position is much better. If the acquisition happens, they will get a bigger balance sheet size that might lead to a greater inflows” from investors who track MSCI Equity Indexes.
Investment Corp of Dubai, the emirate’s main state-owned holding company, is the largest shareholder in Dubai Islamic Bank with a 28% stake. It’s also one of the biggest investors in Noor Bank, a lender set up in 2008.
Dubai Islamic Bank had assets of 224 billion dirhams at the end of 2018 compared to Noor Bank’s 51 billion dirhams, according to data compiled by Bloomberg.
Dubai Islamic Bank’s shares climbed as much as 1.4% to 5.03 dirhams, their highest level since March 13, before paring gains to trade 1% up at 5.01 dirhams as of 12:34pm in Dubai yesterday.
The lender has boosted profit at a compound annual rate of 21% over the past five years as assets grew 13%, according to data compiled by Bloomberg.
Its return on equity of 20.7% in 2018 compares to an average of 12.3% for large publicly trade banks in the Middle East, data compiled by Bloomberg Intelligence shows.
Dubai Islamic Bank said yesterday it doesn’t comment on speculations or rumours, as did a spokeswoman for Noor Bank. Investment Corp of Dubai didn’t respond to a request for comment.
The UAE, which holds about 6% of the world’s oil reserves, is home to about nine million people and the Gulf nation’s small population restricts banks’ ability to expand.
More than 50 banks compete for a share of the domestic market, including the local units of HSBC Holdings plc, Standard Chartered plc and Citigroup Inc.
“The top five banks control 60% of banking system assets in the UAE,” Ghosh said.
“The smaller banks must be really struggling in this environment, so we can expect to see more mergers and acquisitions going forward.” — Bloomberg