HSBC Bank Oman has stated that it will conduct preliminary negotiations with local rival Sohar International Bank, which last week hinted at the prospect of a cash-and-shares merger.

The unit of UK-based HSBC Holdings said in a statement that it has studied the letter of intent received from Sohar and agreed to engage in preliminary conversations to gain further information on the potential offer.

“If the parties agree to proceed with the merger, it will be subject to various conditions including … approval of the relevant regulatory authorities and of the shareholders at the extraordinary general assembly of each bank,” it added.

Sohar has so far provided no details about the conditions of its potential offer, stating only that its board of directors has chosen to investigate the possibility of a cash and shares transaction, subject to certain approvals.

Any conjunction would come amid a consolidation trend in the Gulf area, as profit margins have been squeezed by decreasing government spending, and banks have attempted to scale up in order to become more competitive regionally.

For example, Saudi Arabia’s largest lender, National Commercial Bank (NCB), has merged with a smaller lender, Samba Financial Group, to form Saudi National Bank, which has over $240 billion in assets.

Two large bank mergers have also occurred in Abu Dhabi.

As of the most recent closure, HSBC Oman’s market capitalisation was $587 million. On Sunday, its stock rose 9.7 per cent. According to Refinitiv Eikon statistics, Sohar is worth roughly $816 million. Its stock price was down about 1 per cent.

Since 1948, HSBC has been present in Oman.

(Adapted from USNews.com)