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KFH and Ahli United Bank to resume merger talks
July 30, 2018, 11:41 am

Six months after negotiations broke down over price, Kuwait Finance House (KFH) announced last week that it would hold renewed talks with Bahrain’s Ahli United Bank (AUB) on a potential merger. If the merger goes through successfully it could result in an Islamic lender with about KD28 billion in assets.

The announcement of the intention to merge has caused a lot of controversy, some of which lacks professionalism and inaccuracies in the presentation and analysis. This is expected due to the importance and size of the two banks concerned and the expected size of the bank resulting from the merger.

As the former central bank governor, Sheikh Salem Al-Abdalaziz, has pointed out, the call for a merger of the banks is not new. The benefits of integration are clear in creating a larger banking entity, supposed to be more efficient, more resilient to financial shocks and risks, more profitable, more competitive, more widespread and serving the national economy of both countries.

The Board of Directors of the two banks agreed to study the merger between them, and it is in the interest of the shareholders. The shareholders are supposed to hold them accountable if they do not take this step, and not vice versa. It is the duty of the Board of Directors to maximize value to shareholders and to look into all opportunities that enhance it.

This is what NBK did when it acquired a controlling stake in Boubyan Bank. Today, we see the impact on Boubyan's outstanding results, and the growth of its market share and its ability to compete.

I am sure that the banking regulators of both countries (Bahrain and Kuwait) will do their duty to ensure the integrity of the merger, The Central Bank of Kuwait is one of the most professional Gulf central banks, and no less than its Bahraini counterpart. They are keen on the safety of the banking sector and the national economy, and this is their fundamental role.

The Capital Markets Authority is no less important in ensuring the integrity of the merger procedures and preserving the rights of all shareholders. There is no doubt that the size of the bank resulting from the merger on the competition between banks in Kuwait and Bahrain, and here comes the role of the Competition Protection Authority and the Central Bank to show this effect. The merger usually results in a reduction in expenses. This is certainly an interest and concern for the current employees of both banks. The senior management of the two banks should not lose sight of their rights, career prospects and employment opportunities.

The success of this merger has many advantages to the national economy in both countries, especially as we are embarking on giant projects that require greater financing capacity and greater credit concentration. It is supposed to maximize value for the shareholders of the two banks — government and quasi-government — as they have a big role in making this merger a success.

This merger may have led to further mergers and acquisitions between local banks, with some or with banks in the region. In order for the integration to succeed, the process must be carried out with clear transparency, showing the benefits and risks in a professional manner for all, away from leaks, away from political interference and suspicion of intent, and to do all that is required of it, starting with the boards of directors, supervisors and shareholders.

Abdul Majid Shatti
Kuwaiti economist and former president of the Union of Banks of Kuwait



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