DBG and TII to create world's largest Islamic financial services group

The US$ 300 million deal, will merge the strength of DBG's Islamic commercial and retail banking network with the investment banking expertise of TII.

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By  Massoud Derhally Published  June 11, 2001

The announcement, by the Dallah Albaraka Group ('DBG') and The International Investor ('TII') to combine DBG's assets in a number of banking subsidiaries with TII will create the world's largest Islamic financial services group. The US$ 300 million deal, will merge the strength of DBG's Islamic commercial and retail banking network with the investment banking expertise of TII.

The announcement marks a second high profile cross-border consolidation after the merger of Gulf International Bank and Saudi International Bank two years ago. The decision to consolidate the operations of DBG and TII echoes what many industry analysts maintain—the need for fewer banks in the Middle East. In any merger it is almost always the case that one of the respective parties will always come out stronger. However consolidation does have a positive effect as well. Organisations can lower overhead costs; reduce operational overlaps, even out the cost of investment in technology required to compete with international banks and benefit from economies of scale. “Consolidation is a perquisite to grow this market, we welcome announcements like this,” Mohammed Abdel Hadi, equity research analyst for the Middle East and North Africa at Merrill Lynch told ITP.net.

TII intends to increase its capital through a new share issue at KD 0.255 a share and will use the proceeds to conclude the deal. DBG will become a major shareholder in the new entity. Peter McCormick of TII declined to comment on the announcement because of ongoing negotiations between the two entities. However, further details will be unveiled by Sheikh Saleh A Kamel, chairman of DBG and Adnan Al Bahar, chairman and managing director of TII, at a signing ceremony and press conference to be held in the near future.

Sheikh Saleh A Kamel, said in a statement that, the "deal represents a huge opportunity for DBG and TII as the new entity will be the first Islamic financial services group ready to meet the new regional economic challenges. We will be in a unique position to meet all our customers' requirements for full service banking on a truly pan-regional basis. "We see exceptional prospects for sustainable growth and profitability, underpinned by a uniquely diversified revenue stream."

Adnan Al Bahar said, "The new entity will build on the expertise and complementary capabilities of both parties, while offering shareholders, clients, business partners and staff the advantages and security of being part of a new global Islamic powerhouse. No other entity can offer the breadth and quality of products and services across such a wide geographical base. The new financial services group will lead the way in driving the growth of the global Islamic financial market."

Darren Stubing, chief banking analyst at Capital Intelligence, believes both consumer and corporate banking will further drive the growth of Islamic banking, in terms of the actual size of assets in the market, and the number of new Islamic banks emerging. “We forecast the size of the assets under Islamic management to be around US $160 billion and growing at 10% a year,” Stubing told ITP.net

The deal is subject to approval by the shareholders of both companies, as well as by the relevant regulatory authorities. The announcement follows a request by TII to the Kuwait and Bahrain Stock Exchanges to resume trading of TII shares forthwith.

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