DUBAI: Shareholders of Invest Bank will meet this week to approve a government bailout of the lender in a move that sources said could set the stage for another bank merger in the UAE.

The Government of Sharjah, where Invest Bank is based, stepped in late last year to promise to support the bank after it was hit by high levels of bad loans, partly due to its exposure to the real estate and construction sectors.

Sharjah agreed to invest up to Dh1.9 billion in new shares of the struggling lender, one of the smaller banks in the UAE, and investors will finally get to vote on the plan on April 10, in a meeting originally set in early January.

Before the need for the bailout became clear, the Sharjah government was weighing a merger of Invest Bank with Bank of Sharjah and United Arab Bank, sources told Reuters last September.

After a brief hiatus, preliminary talks have been revived, sources said, though it was unclear whether any deal would be restricted to Bank of Sharjah and Invest Bank, or the two would be joined by UAB.

The Government of Sharjah’s media office and Bank of Sharjah could not be immediately reached for comment. Invest Bank and United Arab Bank declined to comment.

Capital injection

The shareholder meeting comes at a time of heightened interest in consolidation across the UAE’s banking sector. UAE has 50 commercial banks, including 22 local lenders, a high number given the country’s 9.5 million population.

Some deals have already happened. After two of the UAE’s biggest lenders merged in 2017 to become First Abu Dhabi Bank, three more have agreed to combine, led by Abu Dhabi Commercial Bank. Sources said on Monday Dubai Islamic Bank is in talks with shareholders of unlisted Noor Bank.

Yet there are hurdles to any deal involving Invest Bank. One of the sources said the central bank wants to first ensure the bank can stand on its own feet and must be suitably capitalised.

But if that happens a deal could be on the cards.

Invest Bank’s filing last month, which set the April 10 date for the shareholder meeting, also said it would seek prior approval for any merger that meets Central Bank requirements.

“Everyone is waiting to see the outcome of the general assembly because unless Invest Bank is capitalised through a strategic investor, the merger cannot happen,” one of the sources said.

Barclays is advising Invest Bank on the capital injection and HSBC is advising the Sharjah government.