Biggest Saudi Arabia bank starts talks to create mega lender

National Commercial Bank, Saudi Arabia’s biggest lender, started initial talks with Riyad Bank for a merger, a deal that would create the Gulf’s third-biggest lender with $182 billion in assets.

Talks may not result in a transaction, National Commercial Bank said in a statement. The lender said it has coordinated the move with the central bank and that a deal isn’t expected to result in forced dismissal of staff.

Saudi Arabia is exploring potential mergers to boost its financial services industry after the combination of Saudi British Bank and Alawwal Bank, Bloomberg reported earlier Monday, citing people familiar with the matter. The kingdom’s sovereign wealth fund, which owns stakes in some of the biggest lenders, is weighing which banks could be merged to increase scale and competition, the people said, asking not to be identified because the talks are private.

The Public Investment Fund, Saudi Arabia’s wealth fund, owns about 44% of National Commercial Bank and 22% of Riyad Bank, according to Bloomberg data. National Commercial Bank has a market value of $38 billion and Riyad Bank $14 billion.

Riyad Bank shares gained 5.2% at the open on Tuesday, extending this year’s climb to 52%. National Commercial Bank declined 1.1%, trimming its gains in 2018 to 27%.

Merger Mania

There are fewer than 30 local and international lenders in Saudi Arabia, serving more than 30 million people. The neighboring United Arab Emirates has almost 50 banks catering to a population of less than 10 million.

“Consolidation has never been at the forefront of concerns among Saudi banks, given the branches per capita are among the lowest in the GCC,” Aarthi Chandrasekaran, a Dubai-based analyst at Shuaa Capital said. "The real need for consolidation is limited because it isn’t such a crowded market like the UAE.”

Three of Abu Dhabi’s state-linked banks are in talks to combine into an institution with $110 billion of assets. The negotiations follow a tie-up between Abu Dhabi’s two biggest banks last year and the merger of sovereign wealth funds in March.

In Saudi Arabia, the biggest Arab economy, HSBC unit in October agreed to buy a local rival part-owned by Royal Bank of Scotland in a $5 billion deal to create the kingdom’s third-largest lender.

Other Gulf banks in merger talks:

Kuwait Finance House, Ahli United Bank National Bank of Bahrain, Bahrain Islamic Bank, Bank Dhofar, National Bank of Oman Alizz Islamic Bank, Oman Arab Bank

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