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Satyendra Pathak
Doha
Commercial Bank associate National Bank of Oman (NBO) has entered into talks with Bank Dhofar to explore potential merger between the two entities.
According to a statement given by Commercial Bank on the Qatar Stock Exchange (QSE) website on Monday, Commercial Bank holds 34.9 percent of the shares in National Bank of Oman.
"The board of directors of NBO in its meeting held on July 29, 2018 resolved to commence discussion with Bank Dhofar to explore the possibility of a merger between the two entities subject to obtaining final approvals from the respective Boards, shareholders, stakeholders and regulators," the statement said.
In a regulatory filing to Muscat Securities Market, the board of Bank Dhofar has also given nod to commence discussions with National Bank of Oman to explore the possibility of a merger.
According to reports, the upcoming merger of two Omani lenders could create a new financial institution in Oman with $20 billion in assets.
The two banks, however, have not given any details about the timeline or how they intend to structure the possible merger.
Data show that both the banks have four common shareholders as 28 perent ownership in Bank Dhofar and 29 percent ownership in National Bank of Oman are held by Civil Services Pension Fund, Ministry of Defense Pension Fund, State General Reserve Fund and Public Authority for Social Insurance.
If the two banks merge, then the combined entity will be the second largest bank in Oman after Bank Muscat.
Both Dhofar Bank and NBO in the past have tried merging with other financial institutions but abandoned talks.
Bank Dhofar ended merger negotiations in October 2016 with smaller rival Bank Sohar after the two sides were unable to reach agreement on issues related to the tie-up after deliberating on the deal for about three years. NBO, on the other hand, abandoned plans to merge with Bank Muscat in 2005 and, a decade later, ended its bid to acquire much smaller United Finance in 2015, reports said.
According to industry experts, banks across the region are facing pressure on profitability and tighter liquidity, especially in countries where public sector deposits have been withdrawn from banks to shore up government finances weakened by lower oil prices.
In such a situation, banks in region are increasingly looking to mergers in a bid to gain scale to cope with tougher operating conditions as low oil prices in the past three years have squeezed their profit margins.
Rating agencies Moody's Investors Service and Standard & Poor's, however, have said in recent reports that regional banks are set to see a stronger performance this year as macroeconomic conditions improve and demand for credit grows.
