Kuwait's Burgan Bank said it agreed to buy foreign assets worth KWD194 million (Dh2.671 billion) from Bahraini lender United Gulf Bank (UGB) as part of an international expansion programme.
Shares in Burgan Bank rallied 3.9 per cent, the biggest one-day jump in almost three months, as the 31-year old lender seeks to become a regional player and catch up with bigger rivals such as Commercial Bank of Kuwait and Gulf Bank. Founded in 1977, Burgan Bank only operates in Kuwait.
The UGB operations to be acquired include Algeria Gulf Bank, Bank of Baghdad, Jordan Kuwait Bank and Tunis International Bank.
The transaction is expected to involve the issue of 200 million shares in Burgan Bank, the company said in a statement.
"The purchase of holdings in these four banks is the first step in our regional expansion strategy," Burgan Bank chairman Tareq Abdul Salam said.
Investment firm Kuwait Projects Company (Kipco), which has said it wants to use proceeds of the sale of mobile operator National Mobile Telecommunications Company to expand in the financial industry in the Middle East, controls both banks.
"Burgan Bank is expanding abroad because competition is increasing at home and the central bank is restricting lending," said Mustafa Behbehani, director at Gulf Consulting Company.
Several Kuwaiti lenders such as National Bank of Kuwait have been expanding abroad to offset competition at home where the central bank earlier this week allowed Omani lender Bank Muscat to open a branch, the fifth Gulf lender setting shop.
The central bank is also tightening consumer lending to tackle the Gulf Arab state's soaring inflation which hit a record of 9.5 per cent in January, threatening banks' profits.
Burgan Bank Chief Executive Officer Jonathan Lyon told Reuters last month the lender wants to acquire banks in the Middle East and North Africa.
Kipco said in March it wants to set up a dedicated investment banking and asset management unit, and another that provides other commercial services, such as retail and corporate.
"It makes sense. They are getting specialisation that way," said Behbehani.
United Gulf Bank said it now wanted to focus on investment and asset management but did not say whether it would sell more assets.
Lyon said last month Burgan Bank was looking to expand to Syria apart from countries such as Iraq, Mauretania, Egypt and Algeria. He declined then to be more specific.
According to slides for an investor presentation held in March – which listed all the assets bought on Monday – Kipco had also named UGB's stake in Syria Gulf Bank as part of its commercial banking network.
In Kuwait, Burgan plans to increase the number of branches to 35 from 21 within two years, Lyon said last month.
Burgan Bank said it plans to sell 200 million shares – almost a fifth of its 946.9 million outstanding shares according to Reuters data – to help finance the transaction but gave no more details.
Shares of Burgan Bank closed up 3.9 per cent, the biggest one-day jump in almost three months. Shares of Kipco also ended 3.6 per cent higher.
Kipco owns 51.25 per cent of Burgan Bank and 88.15 per cent of UGB, according to the Kuwait bourse website.