The potential merger of Alizz Islamic Bank and United Finance would be a shot in the arm to the overcrowded Omani financial industry, according to the investment bank U-Capital.
Still, the tie-up may pose challenges because while Alizz Islamic Bank is Sharia-compliant, United Finance is a conventional bank, Muscat-based U-Capital said.
“As Alizz Islamic Bank operates on Sharia guidelines while United Finance is a conventional leasing company so [a] merger would be challenging in our view, and the end result is unpredictable at this point in time, in terms of assets, as some of UFCI’s [United Finance] clients might not transfer its business under the Sharia banner,” said Hettish Karmani, the head of research at U-Capital.
“The merger between United Finance and Alizz Islamic Bank poses complications,” he added.
“However it also presents opportunities for the proposed combined entity. The deal serves to rationalise the marketplace as the financial sector continues to be crowded with more players generating sub-par returns relative to more mature markets. Oman has many financiers whether banks/NBFCs [non banking financial company] or Islamic/conventional financiers and any merger serves to rationalise the financial sector.”
Alizz Islamic Bank told the Muscat Securities Market on Tuesday that it proposed a strategic merger with United Finance. For its part, United Finance said it had received the proposal and had forwarded it to the board of directors for consideration.
Combined, the new entity if the two merge would have assets of 581 million Omani riyals (Dh5.54 billion) with Alizz having assets worth 463m riyals and United Finance assets of 117.8m of assets. In the first quarter of this year, Alizz recorded a loss of 740,000, riyals while United Finance had a profit of 757,000 riyals.
Mr Karmani said that while there were few details about the possible merger, U-Capital was assuming for the time being that it would be a full consolidation.
If they merge, the banks would be following in the footsteps of the recent merger in the UAE of the National Bank of Abu Dhabi and FGB. The UAE also has an overcrowded banking market.
mkassem@thenational.ae
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