Saudi Arabia's largest lender abandons potential merger

The boards of National Commercial Bank and Riyad Bank agreed to abandon tie up that would have created regional behemoth

 Jeddah, Saudi Arabia -- July 19, 2009 -- A National Commercial Bank (NCB) branch. Michael Bou-Nacklie for The National

National Commercial Bank (NCB), the biggest lender in Saudi Arabia by assets, ended talks for a merger with its smaller rival Riyad Bank, terminating a potential deal, which promised to create a banking giant with $200 billion (Dh734bn) in combined assets.

The boards of the two lenders agreed to stop merger talks, the banks said in separate statements on Monday to the kingdom's Tadawul Stock Exchange without specifying the reason for terminating the talks.

NCB said it is committed to become the region’s leading financial services group by “implementing its sustainable growth strategy”, while Riyad Bank said it will continue to develop its products, services and technologies that “serve the interests of its customers, shareholders and employees”.

The halting of talks comes almost a year after both lenders announced their intentions and initiating exploratory talks in December 2018.

Both banks had said they sought consultations from the kingdom’s financial regulator, the Saudi Arabian Monetary Authority, prior to merger discussions and both entities did not expect “forced dismissal” of employees if the merger went through.

The Public Investment Fund, Saudi Arabia’s sovereign wealth fund that holds stakes in some of the biggest lenders, owns 44 per cent of NCB and about 22 per cent of Riyad Bank.

NCB shares declined 2.4 per cent since the beginning of 2019, while those of Riyad Bank have surged 23 per cent. That compares with a gain of 4 per cent for Saudi Arabia’s benchmark stock index, according to Bloomberg.

The deal would have out-shone the combination of Saudi British Bank (Sabb) and Alawwal bank in June that created a financial entity with more than $73bn in assets. The two lenders formally merged to become the third-biggest lender by assets in the kingdom.

NCB and the Riyad Bank deal was seen as the continuation of the consolidation trend in the Gulf banking industry. Bank mergers in the Gulf have picked up pace in recent years as lenders combine their balance sheets to gain scale in a bid to better face tougher market conditions against a weakening global economic backdrop.

The Sabb and Alawwal deal followed Abu Dhabi Commercial Bank’s tie-up with Union National Bank and subsequent takeover of Al Hilal bank as its Sharia-compliant arm in the UAE.

Last month Dubai Islamic Bank, the biggest Sharia-compliant lender in the UAE, secured regulatory approval to buy Noor Bank.

This follows the merger of National Bank of Abu Dhabi and First Gulf Bank to create First Abu Dhabi Bank, a banking powerhouse in the UAE.

Elsewhere in the region, the boards of Kuwait Finance House and Ahli United Bank in September agreed on a share swap ratio, a crucial step in the former's bid to take over its smaller Bahraini counterpart and create a combined Islamic banking entity with more than $96.7bn in assets.

The Bahraini entity, at the time said, its board approved a final exchange ratio between the two lenders of one KFH share for every 2.325581 AUB shares.