DUBAI, United Arab Emirates - Three Islamic investment banks in Bahrain said Sunday they have agreed to merge to better compete in a fragmented market.
The combination of Capivest, Elaf Bank and Capital Management House will create a bank with assets of $400 million, according to a statement from the lenders. The banks said the deal is the first-three way merger in the Gulf island kingdom's history.
Elaf's vice chairman, Isa Habib, said the combined bank should be able to win larger projects while benefiting from a more diverse balance sheet.
"The aim of this merger is to establish a strong banking institution that is able to compete solidly in a changing market," he said in a statement issued by Kuwait Finance House, which advised the lenders on the merger.
The official Bahrain News Agency also announced the deal, which must still be approved by Bahrain's central bank and the Ministry of Industry and Commerce.
Bahrain, one of the oil-rich Gulf's traditional banking centres, has positioned itself as a major hub in the Islamic finance industry. Its reputation as a business haven has been seriously damaged by more than 16 months of unrest in the strategic island nation, which is home to the U.S. Navy's 5th Fleet.
The Islamic banking industry focuses on investments and financial tools that comply with Islamic law, which generally prohibits the charging of interest.
The central bank last year pressed for consolidation in the country's Islamic banking industry to bolster the health of lenders' balance sheets.
A proposed merger of two other lenders in the kingdom, Bahrain Islamic Bank and Al Salam Bank, fell through in February after they were unable to agree on terms of the deal.
Some analysts have urged the Gulf's many relatively small local lenders to consider consolidation to better compete with international rivals.
In one of the region's rare banking acquisitions, Dubai's Emirates NBD in October agreed to take over Dubai Bank, a struggling lender with strong government ties. That deal was pushed through by the emirate's government, which came to Dubai Bank's rescue in the month before the acquisition.