(Bloomberg) — Kuwait Finance House KSCP offered to buy Bahrain’s Ahli United Bank BSC in an all-share deal that’s valued at about $8.8 billion. The Kuwaiti lender plans to issue 1 share for every 2.325581 shares of Ahli United, according to a statement. In January, the banks’ advisers had recommended the same swap ratio.

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The combined entity will potentially become the Gulf’s sixth-biggest lender with $100 billion in assets and the deal value was based on the lenders’ closing price on Thursday. Kuwait Finance House shares have gained 27% this year to 707 fils, while AUB shares are up 51% to 94.1 U.S. cents.

The swap ratio is fair and the merger “will create substantial cost synergies in Bahrain and Kuwait,” Jaap Meijer, the Dubai-based head of research at Arqaam Capital Ltd., said by email. He expects a 24.8% rise in KFH’s earnings and the combination to boost its return on equity by by 2.7 percentage points, driven by the cost synergies, AUB’s better asset quality, higher growth prospects and strong capital.

Lower oil prices over the past five years are forcing Gulf lenders to consolidate for scale and to better compete in a crowded market. Subdued credit growth, competition for deposits, higher cost of funds and deteriorating asset quality are driving consolidation in the regional banking sector.

In Saudi Arabia, National Commercial Bank is in the process of merging with Riyad Bank to create the Gulf’s third-largest lender with $193 billion in assets. Abu Dhabi completed the merger of three of its banks earlier this year to create the region’s fifth-biggest lender.

HSBC Holdings Plc and Credit Suisse Group AG were advising KFH and AUB on the talks.