© Reuters. FILE PHOTO: HSBC logo is seen on a branch bank in the financial district in New York, U.S., August 7, 2019. REUTERS/Brendan McDermid

DUBAI (Reuters) – HSBC Bank Oman said on Sunday it would hold preliminary talks with local rival Sohar International Bank after the latter last week held out the possibility of a cash-and-shares deal to merge the two lenders.

In a statement the unit of UK-based HSBC Holdings (NYSE:) said it had considered the letter of intent it received from Sohar and had agreed to engage in preliminary discussions to obtain more information on the possible 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 given no details of the terms of its possible offer, saying only that its board had decided to explore the possibility of a cash and shares deal, subject to various approvals.

Any combination would come amid a consolidation trend in the sector across the Gulf region as profit margins have been squeezed by lower government spending, while banks try to scale up to become more competitive regionally.

Saudi Arabia’s biggest lender National Commercial Bank (NCB) for instance has merged with smaller lender Samba Financial Group to create Saudi National Bank with over $240 billion in assets.

Abu Dhabi has also seen two major bank mergers.

HSBC Oman’s market capitalisation was $587 million as of its last closing. Its shares surged 9.7% on Sunday. Sohar’s market value is nearly $816 million, based on Refinitiv Eikon data. Its shares were down nearly 1%.

HSBC has been operating in Oman since 1948.

($1 = 3.7521 riyals)

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