ABU DHABI - Abu Dhabi Islamic Bank and First Abu Dhabi Bank denied on Thursday they were in merger talks after a news report said the emirate was considering combining them.

Citing unnamed sources, Bloomberg reported on Wednesday that Abu Dhabi was considering merging the two lenders to create the Gulf region’s largest lender.   First Abu Dhabi Bank, the largest lender in the United Arab Emirates, in a bourse filing said it "strongly denies the report issued by Bloomberg on the potential merger".

"FAB currently has not entered discussions with ADIB to pursue any merger activity," it said.

ADIB, in a separate bourse filing, said the news report was not correct and that the bank is "currently not studying for any merger or acquisition".

There has been speculation in recent months of more possible banking tie-ups in light of the wave of consolidation sweeping Abu Dhabi.

With around 50 banks, the crowded UAE banking sector has been squeezed by decreased government spending and lower profit margins.

Abu Dhabi’s two largest banks, First Gulf Bank and National Bank of Abu Dhabi merged in 2017 to form First Abu Dhabi Bank while another three-way merger of Abu Dhabi Commercial Bank, Union National Bank and Al Hilal Bank is currently underway. Two of Abu Dhabi’s largest investment funds, Mubadala and International Petroleum Investment Company (IPIC) were also merged.

(Reporting By Stanley Carvalho; editing by Emelia Sithole-Matarise) ((stanley.carvalho@thomsonreuters.com; + 9712 6444431; Reuters Messaging: stanley.carvalho.thomsonreuters.com@reuters.net))