HSBC Bank Oman is set to hold initial talks with local rival Sohar International Bank to discuss a potential merger.

The move comes after Sohar decided to send a letter of intent to HSBC Bank Oman to explore the possible combination.

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According to a Reuters report, HSBC Bank Oman has assessed the letter of intent and agreed to engage with the other party for preliminary talks.

The merger may involve HSBC Bank Oman acquiring Sohar in a combination of cash and shares, subject to shareholder and regulatory approvals among others.

Other terms of the possible deal are not immediately known.

The development follows a series of consolidations in the Gulf region amid fall in profit margins.

In one of the key deals, Saudi Arabia’s National Commercial Bank (NCB) acquired smaller rival lender Samba Financial Group to create a combined lender with more than $240bn in assets.

UK-based HSBC has been present in Oman since 1948.

In June 2012, HSBC Bank Middle East’s operations in Oman combined with Oman International Bank to create a new entity called HSBC Bank Oman.

It offers an array of banking services in the country to corporate and retail customers.

According to its website, the bank is the first to introduce ATMs, online banking and international ATM cash withdrawals in the country.

HSBC Oman has a market capitalisation of around $587m, as of its last closing.

Earlier this year, HSBC partnered with IBM to explore quantum computing applications in the financial services space.