Saudi bank Al Rajhi in merger talks for its Malaysian unit with another lender

The Saudi lender has received preliminary approval from the Saudi Arabian and Malaysian central banks for a potential deal

Al Rajhi Bank on Tuesday said its second quarter net income rose 3.4 per cent. Bloomberg

Al Rajhi Bank, Saudi Arabia’s second-largest lender by assets, said it is in talks for a potential merger of its fully owned subsidiary in Malaysia with a state-backed financial institution in the Asian country.

The possibility of combining the balance sheets of Al Rajhi Banking & Investment Corporation Malaysia and Malaysian Industrial Development Finance (MIDF) are at early stages, the Saudi lender said in a statement on Sunday to the Saudi stock exchange, where its shares are traded.

Al Rajhi has received preliminary approvals from the Saudi Arabian Monetary Authority and Malaysian regulator Bank Negara, it said.  If an agreement is achieved, it will still be subject to various conditions.

“The merger is not expected to have a material impact on the bank’s financial statements,” Al Rajhi said. “There are no related parties involved in the proposed merger,” it said, without giving the further details about the possible timeline of the deal or how it will be structured.

The potential tie-up will expand the scope of business for MIDF, which is controlled by state-owned asset manager Permodalan Nasional. The merger would allow the Malaysian financial institution to start taking deposits. A deal could create an entity with combined net assets of about 1.5 billion ringgits (Dh1.34bn) to 2.5bn ringgits depending on the structure of the transaction, Bloomberg reported in December.

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Al Rajhi, along with Sharia-compliant lender Kuwait Finance House and another Islamic lender from the GCC, were granted licenses by Bank Negara in 2004, as part of Malaysia’s efforts to have 40 per cent of its banking assets comply with Sharia laws by 2020.

The Saudi lender's plans to look for consolidation of its assets abroad come amid a wave of mergers and acquisitions in the Arabian Gulf, particularly in the bank’s home turf, as lenders look to gain scale in a bid to better compete with larger financial institutions.

There are 12 banks in Saudi Arabia for a country with a population of about 30 million people. However, common government shareholding in some banks through the Public Investment Fund allows for easier deals. Currently, there are two ongoing M&A deals in the kingdom, the biggest banking market in the six-member economic bloc of GCC.

National Commercial Bank, the top lender in the kingdom by assets, in December said it is in preliminary talks to consolidate with Riyad Bank, a move that could create a financial institution worth $182bn (Dh668bn) in assets.

NCB and Riyad Bank’s proposed tie-up follows Saudi British Bank and Alawwal bank’s merger announced in early 2018. Boards of the two lenders in October approved a merger agreement that will create a financial entity with $73bn in combined assets.

In the UAE, the second-biggest Arab economy, Abu Dhabi Commercial Bank, the second largest lender in the capital, is in talks for a possible three-way merger with Union National Bank and Sharia-compliant Al Hilal Bank, which could create the Gulf’s fifth largest banking entity with about $114bn in combined assets.