Bahrain Bank Al Khair Eyes Retail Push With Khaleeji Merger

Bank Al Khair, a Bahrain-based investment bank, expects its potential merger with local player Khaleeji Commercial Bank to help provide it with retail banking exposure and more stable revenues, a top executive said.

Unlisted Al Khair and Khaleeji, both Islamic banks, set up a committee to study the feasibility of a merger, with any agreement subject to due diligence and approvals by shareholders and the regulator, Khaleeji said in a bourse filing earlier this month.

A merger would create an entity with paid-up capital of about $500 million and assets in the range of $600 million to $1 billion, Jonathan Holley, Bank Al Khair’s acting chief executive and head of investment banking, said in an interview on Sunday.

“Our motivation is to acquire a retail skill set. That will represent a bigger and more stable platform for growing and help us diversify into more consistent revenue streams,” Holley said.

Khaleeji has seven retail branches in Bahrain and investments worth about BD100 million ($265 million) outside the country.

An independent firm is now finalising valuations for the two businesses, the executive said, adding that a deal would probably involve both cash and an exchange of shares. Khaleeji would be expected to remain listed on the Bahrain bourse after the deal.

“Basically, the valuations will drive ownership post-closing. We don’t know the merger ratio yet. On the surface, they are about equal,” Holley said.

A deal would also help Khaleeji, which has a market value of about $162 million, expand into regions such as Turkey and Saudi Arabia, where Bank Al Khair has operations.

Saudi real estate developer Dar Al Arkan is a key shareholder in Bank Al Khair, while Gulf Finance House owns 43 per cent of Khaleeji, according to Thomson Reuters data.

Mergers among Bahraini lenders have been encouraged by the country’s central bank, especially among smaller Islamic banks hit hard by a local real estate crisis and political unrest in the tiny island nation.

Many previous attempts to consolidate the Gulf Arab region’s banking sector have been scuppered by shareholders unwilling to cede control except for sky-high valuations.

But National Bank of Bahrain and a local pension fund said in March they would buy a 51.6 per cent stake in Bahrain Islamic Bank, while Capivest, Elaf Bank and Capital Management House completed a three-way merger in January.

Bank Al Khair, previously known as Unicorn Investment Bank, is also in an advanced stage of acquiring a business in Turkey, Holley said without providing details.

“We are in the regulatory stages now for the deal. It will be the largest in the bank’s history.”

Bank Al Khair posted a first-quarter loss of $2.8 million, while Khaleeji had a profit of BD302,000.