A New Banking Partnership

by BTM

Wed, 22 January 2020

A New Banking Partnership

The National Bank of Bahrain (NBB) has recently announced a new milestone in its history after successfully increasing its controlling stake in Bahrain Islamic Bank (BisB) to 78.81 per cent. We spoke to Jean-Christophe Durand, the CEO of NBB, about how this acquisition will shape the future of both banks.

Please take us through the offer that was put forward by NBB. What should we expect to see next?
In November of 2019, NBB launched a voluntary tender offer to acquire up to 100 per cent of the issued and paid up ordinary shares of BisB, subject to a minimum acquisition of 40.94 per cent of the issued share capital of BisB, to bring the holding to a minimum of 70 per cent. The offer was extended to all shareholders on the same terms and comprised two full alternative branches, cash or share.

The offer was a success and on completion of the settlement, which is expected to take place on January 22, 2020, NBB will own a controlling stake of 78.81 per cent of BisB, up from its pre-transaction stake of 29.06 per cent. At this time, participating BisB shareholders who opted for the cash offer will receive their payments either via wire transfer or cheque, while BisB’s shareholders who accepted the share exchange offer will collect their NBB share exchange allotment notices from the offices of Bahrain Clear.

The transaction is expected to be completed at the end of January 2020, subject to process requirements imposed by the takeover regulations, upon which time we will start the process of integration and development of synergies which is expected to last 12-24 months.

This is an exciting time for both entities and we are confident it will result in asset, revenue, cost and other operational synergies that will provide shareholders with enhanced returns in comparison to the standalone entities. We would also like to take this opportunity to thank the Central Bank of Bahrain and all other stakeholders for their continued support without which we would not have been able to complete the acquisition. 

What makes BisB the right fit for your business model?
Our decision to invest further in BisB was the result of continuous screening of opportunities and the conclusion that BisB was the most suitable target for our business. Following a stringent due diligence on BisB that was initiated in 2018, we chose to invest in the bank that we believed was a good fit for the group and would allow us to strengthen our position in the industry.

BisB has played a pivotal role in the development of the Islamic banking sector in the Kingdom of Bahrain, paving the way as the first Islamic bank in the country and fourth across the GCC.

Is this the right time to invest in Islamic banking, considering that there are other mergers which will result in large Islamic banks in Bahrain?
NBB has a strategic vision for the business and for the group’s presence in the Islamic banking market; investing in an Islamic bank was a well-thought-out move to enable us to become more relevant in Sharia-compliant businesses and geographies. It was a decision made to reinforce our group’s presence and speed up our development in Islamic banking activities similar to what other large banking groups are doing in the GCC region, allowing for future investment opportunities.

It was decided that the acquisition would take place during this time frame to enable NBB to benefit from higher growth rates in the Islamic segment of the banking industry, seeing how Middle East Islamic banking is projected to grow at an annual rate of 5 per cent, which is above that of the conventional banking industry. Furthermore, global Islamic banking assets are projected to reach USD2.4 trillion by 2020, and with Bahrain, Saudi Arabia and Kuwait expected to be major players in market share this year, it was determined that this was the best time to move forward with the acquisition.

The acquisition of BisB will allow for pooling of future investments required for us to adapt to the

evolution of the banking landscape in terms of technology and regulation, among others.

Does this mean that the two banks will now operate as one and what impact will this have on BisB’s business and its employees?
The transaction is expected to strengthen both the NBB and BisB brands, and will not have any negative impact on employees of either bank since they will continue to operate as two independent entities in the local and regional markets.

NBB intends to maintain BisB’s commercial registration and vocation as an Islamic retail bank and BisB will continue to operate under its normal course of business and maintain its operations as a subsidiary of NBB. BisB will recommence trading on the Bahrain Bourse on January 23, 2020.

Furthermore, through this transaction, BisB’s business model will be widened with the aim of strengthening value-accretive and healthy business lines and sectors. Product offering will also be expanded to include products in line with evolving market demands. BisB’s vision to be a leading Islamic bank will be further reinforced through the increased resources available with the new majority shareholder.

How does this transaction impact NBB’s financial standing and its shareholders?
NBB will continue to benefit from a sound financial position with pro-forma regulatory capital ratios above the requirements as per the CBB's Capital Adequacy Rules. In regards to NBB’s shareholders, the effect is extremely limited given the limited portion of shareholders who opted for the share compontent, with the number of new NBB shares estimated at 3 million, which translates to approximately 0.2 per cent of the current number of NBB shares.

Do you have future plans to further expand into this market?
We will definitely continue to analyse the market opportunities as part of our ambitious growth strategy which encompasses a number of strategic routes to ensure that the bank continues to boost its business and become more profitable while adapting to a fast-evolving banking industry.