Dubai Islamic Bank (DIB) is set to become the region’s most powerful Shari’a banking group, after its board recommended going ahead with the acquisition of Noor Bank.

Shares rose in DIB after details of the state-controlled bank’s board meeting emerged, which recommended buying 100% of Noor Bank.

The acquisition, which was announced on Monday, will consolidate DIB’s position as one of the largest Islamic banks in the world, with combined assets of 278 billion dirhams ($76 billion).

The deal is “positive for the sector and Dubai Islamic Bank,” Aarthi Chandrasekaran, a money manager at investment bank Shuaa Capital PSC, said in an email to Bloomberg.

DIB may pay around 0.8 to 0.9 times book value for Noor Bank shares and the deal may lead to savings of at least 20% for Noor Bank, she said.

Cost efficiencies

The acquisition will result in cost efficiencies and contribute to profitability, as well as allowing Dubai Islamic Bank to offer competitively priced products and services across a more diversified portfolio, the lender said in a separate statement. It’s also expected to drive innovation and accelerate the group’s digitisation programme.

Mohammed Al Shaibani, chairman of DIB, said: “Innovation and service excellence sit at the very heart of our business and this will continue as we build scale through this acquisition and develop fresh new ways to improve the banking experience for our customers. In addition, this announcement will provide opportunities for economic growth and prosperity across the region, ensuring that the UAE’s financial sector remains at the forefront of the Islamic economy.”

Dubai Islamic Bank shares rose as much as 3%, the most in almost a month, when they resumed trading. They were up 1.8% at 5.13 dirhams at 11:58 a.m. in Dubai, while the benchmark index was up 1.1%.

Investment Corp. of Dubai, the emirate’s main state-owned holding company, is the largest shareholder in Dubai Islamic Bank with a 28% stake. It’s also one of the biggest investors in the privately-held Noor Bank, which was set up in 2008.

The date and agenda for the general shareholders’ meeting, including the terms and details of the acquisition, will be announced after it has been approved by regulatory authorities.

Wave of consolidation

Dubai Islamic Bank said in the statement. Noor Bank’s operations will be integrated and consolidated within Dubai Islamic Bank after the acquisition, it said.

The Middle East’s financial-services industry is witnessing a wave of consolidation as banks seek ways to improve competitiveness and boost capital amid slowing economic growth. Abu Dhabi has merged three of its banks after combining two of its biggest lenders in 2017. Banks in Saudi Arabia, Kuwait and Bahrain are also holding merger talks.

Dr Adnan Chilwan, GCEO, DIB, added: “Islamic finance is increasingly acknowledged as a viable alternative to conventional banking and, through this acquisition, we believe that we can geometrically accelerate the growth and popularity of Shari’a compliant finance across the region and beyond.”

Sachin Kerur, Partner and Head of Middle East Region at Reed Smith said DIB is one of the largest and oldest Islamic Banks and "reflects a gold standard for Islamic finance globally".

"Its consolidation will create a Dubai-based real powerhouse. Post-merger the new bank will have significantly greater combined balance sheet and sectorial expertise. The shareholders will benefit from a much stronger and diversified bank which is able to compete stronger globally.

"This merger is also an important development for the Islamic finance industry which continues to grow and is already an important alternative for the conventional interest-bearing banking sector. Consolidation is a trend that we will continue to see in the GCC banking industry where it could be said that too many banks are operating presently.”

*With Bloomberg