Gulf banks should merge in the wake of the financial crisis, first in their home markets and then across borders, Oman's central bank head and senior Gulf bankers said.

Gulf central banks should begin by encouraging domestic consolidation and then expansion throughout the region to build up stronger financial institutions, Oman Central Bank Executive President Hamood Sangour al-Zadjali told Reuters.

'They should start merging between national banks in the GCC (Gulf Cooperation Council) and have strong financial units with strong capital as a first stage ... and then, the regional expansion and mergers,' Zadjali said.

'After the financial crisis and the effect (it had) on some banks, maybe the motive for merging becomes stronger than before,' he said on the sidelines of a financial conference.

'Central banks in the region should encourage and support (this).'

Bankers said obstacles remain, including the question of who would regulate a super-regional bank, but consolidation was needed to strengthen capital bases, specialise, and tap a region whose growth is expected to outpace many developed regions.

'For mergers across borders, the time will come. But I think we will first see mergers within the (domestic) market,' Mashreqbank chief executive Abdul Aziz Al-Ghurair said.

'The next step is a cross-border merger but only if regulators agree who regulates who,' he said.

The fast pace of growth in the Gulf, expected to rebound from the crisis faster than developed markets such as Europe and the US, has lured a number of international banks into the region to provide services their local rivals cannot.

Rising demand for financial services -- in debt and equity capital markets, project finance, structured finance and advisory -- would support the creation of bigger, regional, Arab banks, said Jean-Christophe Durand, regional director for French bank BNP Paribas.

'The crisis will force people to be more open to this,' Durand told Reuters. 'It would be wise to have banks with networks all over the GCC.' – Reuters