Bahrain-headquartered Ahli United Bank (AUB) has said it is not in talks with Kuwait Finance House (KFH) for a possible merger between the two lenders and it has not discussed selling its stake in its Kuwaiti operations.

The lender doused local and international media speculation suggesting KFH had initiated talks to buy AUB. The bank denied the news of a merger or a stake sale in two separate statements to the Bahrain Bourse, where its shares are traded.

Reports this week claimed that AUB and KFH were in informal talks to discuss a possible merger transaction, which could create a bank with $85bn in assets. Earlier reports had also hinted at KFH’s interest to buy the Kuwaiti unit of AUB as it seeks to expand and solidify its presence in the oil-rich Gulf state.

AUB owns 67 per cent of its Kuwaiti unit, which had KD3.7bn ($12.2bn) in assets at the end of 2016, and has an estimated market capitalisation of KD767m. KFH has assets of KD16.4bn and a market value of KD2.94bn.

A drop in oil prices and a slowdown in government and consumer spending, which had been the engine of economic growth in the Gulf states, has affected banks’ profitability and credit growth, forcing them to consider mergers to gain scale for a competitive edge. The merger of two of Abu Dhabi’s top banks – National Bank of Abu Dhabi and First Gulf Bank – was completed earlier this year. Qatar’s Masraf al-Rayan is in the process of combining with Barwa Bank and International Bank of Qatar in a three-way merger to create the country’s largest Islamic lender.

AUB has been looking to turn into a pan-GCC banking powerhouse and approached lenders last year in search of a possible merger, according to sources familiar with the matter. It also approached Saudi Arabia’s Alawwal Bank, formerly Saudi Hollandi Bank, for a possible transaction in 2016, but the deal did not materialise, the source added.

Alawwal in April entered into merger talks with rival Sabb and the boards of respective lenders are now considering the modalities of the deal. MEED earlier reported that Alawwal has selected the US’ JPMorgan and multinational Baker McKenzie as advisers on the transaction.