Bahrain's Khaleeji Commercial Bank and unlisted Bank Al Khair have dropped their plan to merge after failing to agree on terms, Khaleeji said in a bourse statement on Monday.
"The primary reason for this decision is due to the non-agreement on the structure and the valuation of the deal," it said.
The two lenders had been in talks since June last year. The decision to call off the merger was mutual and the two banks will continue to maintain a close business relationship, Khaleeji said without elaborating.
Bahrain's central bank has been encouraging local banks to merge to strengthen them after a real estate crash and the island kingdom's political unrest in 2011.
National Bank of Bahrain and a local pension fund bought a 51.6 percent stake in Bahrain Islamic Bank in March 2013, while a share-swap agreement between Al Salam Bank and BMI Bank was completed last month to create the kingdom's fourth-largest commercial lender.
Mergers in the Gulf banking sector are rare as powerful local shareholders are often unwilling to give up controlling positions except for vastly inflated valuations.
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