Dubai Islamic Bank Considers Acquiring Noor Bank, Sources Say

(Bloomberg) -- Dubai Islamic Bank PJSC, the United Arab Emirates’ 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 ($75 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 also holding merger talks.

Read More: Gulf Merger Mania Has Dubai Islamic Bank on the Lookout for Deal

“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.

Common Shareholder

Investment Corp. of Dubai, the emirate’s main state-owned holding company, is the largest shareholder in Dubai Islamic Bank with a 28 percent 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 with Noor Bank’s 51 billion dirhams, according to data compiled by Bloomberg.

Dubai Islamic Bank’s shares climbed as much as 1.4 percent to 5.03 dirhams, their highest level since March 13, before paring gains to trade 1 percent up at 5.01 dirhams as of 12:34 p.m. in Dubai.

The lender has boosted profit at a compound annual rate of 21 percent over the past five years as assets grew 13 percent, according to data compiled by Bloomberg. Its return on equity of 20.7 percent in 2018 compares with an average of 12.3 percent for large publicly trade banks in the Middle East, data compiled by Bloomberg Intelligence shows.

Competitive Market

The U.A.E., which holds about 6 percent of the world’s oil reserves, is home to about 9 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 percent of banking system assets in the U.A.E.,’’ Ghosh said. “The smaller banks must be really struggling in this environment, so we can expect to see more mergers and acquisitions going forward.”

Dubai Islamic Bank said Monday it doesn’t comment on speculation or rumor as did a spokeswoman for Noor Bank. Investment Corp. of Dubai didn’t respond to a request for comment.

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