Alawwal Bank begins merger talks with Saudi British Bank

Alawwal Bank has started preliminary talks on merger with Saudi British Bank (SABB), after obtaining the approval of the boards of directors, the two Saudi banks said in separate statements to the bourse.

The banks said on Tuesday that entering into such discussions does not necessarily mean that a merger would take place.  The merger, if agreed, would be subject to a number of conditions, including the approval of the kingdom's regulatory authorities.

British banks have stakes in both lenders. HSBC Holdings has a 40 percent stake in SABB while Royal bank of Scotland also owns 40 percent of Alawwal via its acquisition of ABN AMRO.

Both banks said it didn’t expect the merger, if completed, to result in any lay-off of employees.

“We would view completion of this merger as a very positive development,” Muhammad Faisal Potrik, head of research at Riyad Capital told Argaam.

He added that though the history of mergers in the country is checkered as a few have tried and been unsuccessful, the economic and regulatory environment is much different now with a more market-friendly and practical approach to business.

“If this merger goes through, it would create the third largest bank in the country after National Commercial Bank and Al Rajhi Bank with an approximately 14 percent market share and could be a precursor to the start of a M&A trend in the banking and other sectors such as petrochemicals, insurance and retail,” Potrik added.

Meanwhile, the Saudi General Organization for Social Insurance (GOSI) owns 9.74 percent in SABB and a 10.50 percent stake in Alawwal Bank. Olayan Saudi Investment Co. owns 16.95 percent in SABB and 21.73 percent equity in Alawwal Bank.

The Saudi banking sector has not seen any mergers in two decades, when Saudi Cairo Bank (SCB) merged with United Saudi Commercial Bank (USCB) in 1997 to form Saudi United Bank, which then merged with Saudi American Bank (SAMBA) in 1999.

Write to Brinda Darasha at brinda.d@argaamplus.com