Sabb and Alawwal approve merger to create third-largest Saudi bank

Merger is still subject to shareholders and regulatory approvals

FILE PHOTO: An HSBC bank call centre is seen at night floodlit in rainbow colours for Malta Gay Pride Week in Swatar, Malta, September 7, 2017. REUTERS/Darrin Zammit Lupi/File Photo
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The boards of Saudi British Bank (Sabb) and Alawwal bank approved a merger agreement between the two lenders that will create a financial entity with $73bn (Dh267.9bn) in combined assets in the Middle East’s largest banking market.

The merger, which is still subject to shareholder and regulatory approval, will create the kingdom’s third-largest bank, with retail and corporate banking services that will facilitate the flow of investments into Saudi Arabia and the growth of international trade, the two lenders said in joint statement on Thursday.

No involuntary staff redundancies are expected as a result of the merger and there will be no immediate change for customers as both banks will remain independent and continue to operate a business as usual service until the merger has completed, the lenders added.  The two banks, which are subsidiaries of the HSBC and Royal Bank of Scotland in Saudi Arabia, in May agreed on the initial terms.

“The combination of Sabb and Alawwal bank will create a powerful banking franchise ready to fuel growth in the kingdom,” Sabb chairman Khaled  Olayan, said. “As Vision 2030 transforms Saudi Arabia, our own transformation will ensure our customers capture the opportunities of a more diverse, accessible and investible Saudi economy.”

Bank mergers in the Arabian Gulf are picking pace. Abu Dhabi Commercial Bank, the second largest lender in the emirate, is exploring the possibility of a merger with rival Union National Bank and Sharia-compliant lender Al Hilal Bank, which could create the Gulf's fifth largest banking entity with about $114bn in combined assets.

The potential tie-up follows last year's merger of National Bank of Abu Dhabi and First Gulf Bank to create First Abu Dhabi Bank, a $188bn banking powerhouse in the UAE.


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Under the terms of the merger deal, Alawwal shareholders will receive 0.485 Sabb shares, valuing each Alawwal share at 16.3 Saudi riyals, the banks said in their respective statements to Saudi stock exchange, where their shares are traded.

The main objective of the merger is to open an exit route for RBS as it would dilute the shareholdings of HSBC (40 per cent in Sabb) and RBS (40 per cent in Alawwal) in the combined entity, Cairo-based EFG-Hermes bank said in a note at the time of the initial announcement. While HSBC is likely to remain the main shareholder, RBS’s shareholding would be diluted to the point it would no longer be classified as a strategic investor and would be able to sell its stake, EFG-Hermes added.

“Our combined bank is expected to deliver attractive long-term shareholder value, generating new growth by ensuring our customers have access to a full suite of services,” Alawwal chairman Mubarak Abdullah Al-Khafrah, said.

Elsewhere in the Gulf, merger activity is also heating up.

The National Bank of Bahrain is in talks to buy Islamic Development Bank’s 14.4 per cent stake in the Sharia-compliant Bahrain Islamic Bank.

NBB’s move follows merger talks between Omani lenders Bank Dhofar and National Bank of Oman to create an entity with $20bn in combined assets.  Muscat-listed Alizz Islamic Bank and Oman Arab Bank, a subsidiary of Omani conglomerate Ominvest, have also agreed to combine their balance sheets.

Kuwait Finance House is also seeking a potential merger with Bahrain's Ahli United Bank, reviving earlier talks for a deal that would create a new Islamic lender worth $92bn in combined assets.