Bahrain based three banks, including Capivest, Elaf Bank and Capital Management House have struck a merger agreement, under which they will unite their banking operations in order to vying against the other banking majors.

As per the agreement inked, the deal will come in force after obtaining final approval of the Central Bank of Bahrain and the Ministry of Industry and Commerce.

The proposal which is the first three-way merger to take place in the Gulf nation has already been backed by the shareholders of the three banks.

Upon successful completion of the integration of the three banks, the newly created entity will have shareholders’ equity of almost $350m (Dh1.28bn) and assets more than $400m while the combined entity would have held assets worth $4.5bn.

Elaf Bank vice chairman Eisa Habib said the aim of the merger is to establish a strong banking institution that is able to compete in a changing market.

"The merger will bring instant diversification of assets and revenues and the bank will be able to capture larger projects and will enable it to diversify its capital sources."

He further said that the merger proposal is in accordance with the government of Bahrain’s efforts to enhance the banking sector and reinforce its position as a regional and international financial hub.

Last year, Bahrain central bank pushed for consolidation in the country’s Islamic banking industry to bolster the lenders’ balance sheets.

Kuwait Finance House’s Bahrain arm said that due diligence on the merger had already been completed and the deal would conclude in the second half of the year.