Islamic banking & finance in GCC (2018)

Saudi Arabia’s Debt Management Office has begun issuing $925 million government bonds through a new ‘primary dealer’ scheme designed to increase demand for the debt and widen the range of investors holding it.
The Government selected five local banks Alinma Bank, Bank Aljazira, Samba Financial Group as well as National Commercial Bank and Saudi British Bank to act as primary dealers, buying the Sukuk directly from the government and then immediately making a market in them by quoting two-way prices to other investors.
Kuwait Finance House KSCP wants to hold renewed talks with Bahrain’s Ahli United Bank BSC about a takeover, a potential boost to the island kingdom as it seeks financial support from richer neighbors.
Shares in Ahli United Bank, or AUB, rose 6.8 per cent to the highest levels since April 2017, valuing the Manama, Bahrain-based lender at $5.66 billion. Kuwait Finance House (KFH) declined as much as 1.3 per cent for a market value of about Kuwaiti Dinar (KWD) 3.88 billion ($12.8 billion).
KFH says that it contacted AUB about “establishing a new banking entity.” Bloomberg News in May 2017 reported that the banks began talks, aiming to create an entity with about $92 billion of assets, but those talks foundered about six months ago over valuation differences.
The proposal comes as debt-laden Bahrain, one of the most vulnerable Gulf Arab economies to lower crude prices, waits for financial support from its neighbors to help reduce ballooning debt and shore up foreign-exchange reserves. Bahrain’s social-insurance fund owns 10 per cent in AUB.
“With the Bahrain government holding a lot of talks with potential official creditors, it seems plausible that Ahli United Bank has been forced back to the table,” says Richard Segal, a senior analyst at Manulife Asset Management Ltd. in London. “Governments would not ordinarily be able to access resources belonging to state pension funds, but these are unconventional times.”
Bahrain, a key Saudi Arabian ally and home to the US Fifth Fleet, hired investment bank Lazard Ltd. to advise on how to repair its strained public finances, people with knowledge of the matter said earlier this month.
Lower oil prices over the past four years are forcing Gulf lenders to consolidate for scale and to better compete in a crowded market. Subdued credit growth, a squeeze on deposits, higher cost of funds and deteriorating asset qualities are driving consolidation in the regional banking sector. Abu Dhabi lenders National Bank of Abu Dhabi PJSC and First Gulf Bank PJSC last year merged to create a regional powerhouse with $175 billion of assets. HSBC Holdings Plc’s affiliate Saudi British Bank offered to take over RBS-backed Alawwal Bank in a $5 billion all-stock deal in May 2017, marking the kingdom’s first bank combination for almost 20 years.
“KFH will benefit in the long term from gaining access to markets such as Iraq and Egypt, increased access to Oman and U.K. and further consolidation of presence in Kuwait,” says Joice Mathew, the head of equity research at United Securities in Muscat. “AUB should benefit from KFH’s expertise in fast-growing Islamic banking in an otherwise subdued banking environment in the region.”
Kuwait Investment Authority, the country’s sovereign wealth fund, holds a 24 per cent stake in KFH and in September 2017 hired a consultant to study the feasibility of a possible merger between the two banks, the lender said at the time. Kuwait’s Public Institution for Social Security holds about 19 per cent of AUB.
“The integration of business could be challenging” because of the “geographical dispersion” of their assets and combination of Islamic and conventional banking, Mathew says.