National Bank of Dubai and Emirates Bank to merge.
In a move that will create the UAE's largest lender, National Bank of Dubai (NBD) and Emirates Bank International are to merge later this year.
The move, which was approved with the blessing of HH Sheikh Mohammed bin Rashid Al Maktoum, vice president and prime minister of the UAE and ruler of Dubai, will create a lender with US$45 bn in assets.
The UAE government owns 14% of NBD and around 77% of Emirates Bank, Dubai's largest bank.
Ahmed Al-Tayer, chairman of Emirates Bank, will be the chairman of the new bank. Abdulla Mohammed Saleh, chairman of NBD, will become vice chairman.
Al Tayer said: "The financial and managerial strength and the economies of scale of the merged bank will allow us to compete more effectively in the rapidly changing and intensely competitive marketplace. The merged bank's stronger home base will add momentum to the overseas expansion that the two banks have successfully pursued over the past years."
Saleh added: "The merger gives us the advantage to capitalise on the unique strengths of both banks to serve our customers better and deliver greater shareholder value."
The banks are to appoint a joint financial advisor to oversee the merger, including the valuation process. Emirates Bank has appointed KPMG to carry out due diligence, while NBD has appointed Ernst & Young.
It is not known what the new bank will be named, or when the merger process is expected to be completed.
Speaking at Emirates Bank's annual general meeting, Al-Tayer said: "We want to move things forward as fast as possible but I cannot put a timeframe."
He also said that he did not expect there to be any job cuts as a result of the merger. Emirates Bank employs around 5,000 people, while NBD has 1,450 staff.
Industry experts have suggested that the move could trigger a wave of consolidation among the UAE banking sector.
Standard & Poor's, the ratings agency, raising its outlook on both banks from positive to stable, and said the new bank would have "strong financial performance, sound liquidity, and a well-diversified funding mix".