KIA appoints consultant to study possible merger of KFH and AUB – Tie-up will make KFH the largest bank in Kuwait: Moody’s

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KUWAIT CITY, Sept 18: Kuwait Investment Authority has appointed a global consultant to study within a period of two months the merger of two banks – Kuwait Finance House (KFH) and Ahli United Bank (AUB) which was established in Bahrain, reports Al-Rai daily quoting sources.

Moody’s said in a report that the merger of the two banks will have a positive impact on credit rating, especially for KFH; as well as strengthening and diversifying the bank’s businesses and supporting its profitability and credit quality in general.

Sources did not name the global consultant but other sources hinted that it could be Bank of America.

Sources disclosed the task was assigned to the global consultant after the trade-off between several presentations by a group of international consultants. Sources said that in the last period the agreement on legal conditions has been finalized and reviewed, and the cost of the study will be submitted by the consultant to the investment authority.

Sources added the investment authority owns more than 24 percent of KFH, the Public Authority for Minors Affairs owns 10.5 percent, the Secretariat General of Awqaf owns 7.3 percent and the insurance company indirectly owns 6.1 percent while it is the most prominent owner of AUB with a share of 12 percent.

Sources explained the global consultant will conduct the study to determine the interest earned from the merger for the public, the market or bank owners.

Sources pointed out there is consensus on the important of the option of integration in the next phase between economic entities, especially banking, which can complement each other and contribute to the exchange of experiences; in addition to what this measure can achieve at the level of financial savings potential and increased opportunities for lending.

Sources said the acceptance of the authority, insurance company and other government owners shall reflect the impact of the merger on public interests and the owners, not just completion of the merger as a traditional procedure.

Moody’s noted that if the merger is successful, it will create the sixth largest bank in the GCC with nearly $85 billion in total assets as per the statistics released by the end of 2016. The merger will make KFH the largest bank in Kuwait, but it will remain the second largest bank in the Gulf operating in accordance with Islamic Law after Al-Rajhi Bank Saudi Arabia.

Sources revealed the discussions opened in this regard included the General Organization for Insurance in coordination with the most prominent governmental bodies but they did not specify the proportion of each aspect of the estimated cost of the study.

The number of domestic branches of KFH reached 65 while AUB has 37 branches.

Moody’s added that success of the merger will lead to expansion of KFH’s banking operations, mainly in Kuwait and Turkey, as well as relatively lesser operations in Bahrain and Malaysia; whereas AUB has subsidiaries in the United Kingdom, Kuwait, Iraq and Egypt, in addition to an associate in Oman. It confirmed that the merger will support the economies of scale and synergies in markets where the banks operate.

On the other hand, Mubasher reported that Kuwait Stock Exchange suspended trading on the two banks until they comment on news published recently. This came after the publication of several reports on the possible merger of the two banks which are listed on the stock markets of Kuwait and Bahrain. However, officials from both banks denied reports on the merger while others confirmed.

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