Three Islamic investment banks in Bahrain have approved plans to merge, in the latest sign that banks are heeding calls by the regulator to form larger entities.

Capivest, Elaf Bank and Capital Management House held extraordinary general meetings on 28 June where the merger plan was approved by shareholders. Once completed, the new entity would have equity of almost $350m and assets of more than $400m.

The Central Bank of Bahrain (CBB) has been applying pressure to smaller investment banks in the country for some time, hoping that it can encourage them to club together and form larger institutions that will play a more active role in regional financial markets.

Kuwait Finance House advised the three banks on the merger, which still requires approval from the CBB. Sources in Bahrain say that approval should be forthcoming as the CBB is keen to see mergers occur. The CBB said it was aware of four mergers planned in the country in late 2011 that it was actively involved in.

Following the financial crisis, many of the smaller banks in Bahrain have faced difficulties with overexposure to real estate and in getting access to funding.