Islamic bank Kuwait Finance House (KFH) has started the process to explore the possibility of a potential merger with Bahrain’s Ahli United Bank (AUB) that would create a new bank with assets more than $90bn.

KFH was reported to have invited AUB to hold merger discussions and start a due diligence process for the deal.

The Kuwait-based lender has also requested AUB to sign a non-disclosure agreement.

The agreement, if signed, will enable the companies to explore the feasibility of combining the businesses as well as carry out valuation studies. Financial and other associated terms of the agreement are not known.

According to Thomson Reuters and Bahrain bourse data, both the companies have Kuwait state-owned entities as their major shareholders.

The Public Institution for Social Security holds 18.59% stake in Bahrain’s Ahli United Bank, while the Kuwait Investment Authority (KIA) is a key stakeholder in KFH.

A source familiar with the development told Reuters that the agreement shows ‘seriousness’ in the deal as well as support from the major shareholders of the banks.

If the deal advances, it would create sixth largest bank in the Gulf region.

Established in 1977, KFH employs around 9,000 people and has its branches in several overseas countries including Bahrain, Malaysia and Saudi Arabia.