Alawwal, SABB merger will boost new entity’s solvency, say analysts

The merger between Alawwal Bank and Saudi British Bank (SABB) is expected to boost the financial solvency of the new entity and would enhance the banking sector’s competitiveness, analysts told Argaam.

The merged bank is set to become the kingdom’s third largest bank by assets after National Commercial Bank (NCB) and Al Rajhi Bank; and the second largest in terms of capital.

Alawwal Bank said on Wednesday it has started preliminary talks on a possible merger with SABB.

The new entity will be capitalized at SAR 26.43 billion, with SAR 291.13 billion and SAR 230.52 billion worth of assets and deposits respectively, Khaled Al-Zaidi, a financial analyst, said.

The merger would boost the new entity’s market share, he added.

The new consolidated entity will mostly capitalize on the two lenders’ synergies and would serve a bigger tranche of clients, stated Turki Fadaak, research and advisory manager, at AlBilad Investment Co.

When asked if one of the two lenders has resorted to consolidation due to facing financial crises, Fadaak said that Alawwal Bank’s 37 percent profit drop in Q1 doesn’t signal any financial burdens.

SABB posted a 9 percent profit decline in Q1 2017 to SAR 1.03 billion.

Khaled Al-Olayan, chairman of SABB, said that although it was too early to talk about the consolidation process, it was result in a boost the whole banking sector.

Mubarak Abdullah AlKhafrah, chairman of Alawwal Bank declined to comment.

The best consolidation option is an acquisition deal where the bigger bank would buy out the small lender’s shares and increase its capital to cover the other entity’s value, said Ibrahim Al Nassri, a capital markets lawyer.