NCB-Samba merger to cre­ate na­tional cham­pion in bank­ing

Arab News - - Business - FRANK KANE

The trend to­ward con­sol­i­da­tion in Saudi Ara­bia’s bank­ing sys­tem ap­pears ir­re­sistible, what­ever the post-pan­demic fu­ture brings. That is a good thing. The most re­cent man­i­fes­ta­tion is the merger be­tween Na­tional Commercial Bank (NCB), the King­dom’s big­gest, and Samba Fi­nan­cial Group, the fourth-largest len­der. The com­bined en­tity would be by far the big­gest bank in Saudi Ara­bia, chal­leng­ing for the top slot in the re­gional bank rank­ings. NCB is the grandee of the Saudi bank­ing scene, trac­ing its ori­gins back to 1953, when a lot of the King­dom’s busi­ness was banked by for­eign in­sti­tu­tions.

A cou­ple of years later, Citibank, the Amer­i­can fi­nan­cial gi­ant, opened its first branch in the King­dom, and ex­panded un­til in 1980 the gov­ern­ment de­cided Saudi banks should be owned mainly by Saudis.

Samba, orig­i­nally the Saudi Amer­i­can Bank, was the re­sult of that move to­ward na­tional con­trol. Citi re­tained a big stake un­til the early 2000s, when it sold out of op­er­a­tions in the King­dom com­pletely. But Citi never en­tirely went away, and in 2018 — with the eco­nomic trans­for­ma­tion of Vi­sion 2030 un­der­way — moved back full time with a new Riyadh of­fice. But the NCB-Samba merger is more than a tidy-up of his­tor­i­cal loose ends. It cre­ates a true na­tional cham­pion in the Saudi bank­ing in­dus­try, with roughly one-third of all bank­ing as­sets, val­ued at more than $200 bil­lion and at least dou­ble its near­est ri­val, as well as a King­dom-wide re­tail net­work.

The tim­ing of the merger might sug­gest a re­ac­tion to the eco­nomic pres­sures of the COVID-19 cri­sis, and it is true that banks in the King­dom felt the heat from some rat­ings agen­cies. But S&P re­cently judged Saudi banks to be the most re­silient in the re­gion in the face of the eco­nomic and fi­nan­cial pres­sures of the pan­demic. Multi­bil­lion-dol­lar in­jec­tions of liq­uid­ity into the bank­ing sys­tem by the Saudi Ara­bian Mon­e­tary Author­ity (SAMA) have only en­hanced that re­silience.

Rather, the NCB-Samba merger should be seen as a con­tin­u­a­tion, and the big­gest ex­am­ple yet, of a trend that has been un­der­way for the past three years. A more ef­fi­cient and dy­namic fi­nan­cial in­dus­try is one of the tar­gets of the Vi­sion 2030 strat­egy and re­duc­ing the num­ber of banks is a pre­con­di­tion for achiev­ing that.

Putting to­gether two of the most prof­itable and best-cap­i­tal­ized banks in the King­dom can only help speed up the drive for fi­nan­cial ef­fi­ciency. The tem­plate for bank­ing merg­ers was the link-up be­tween Alawwal and Saudi Bri­tish Bank (SABB) which was agreed upon last year after a long ges­ta­tion pe­riod dur­ing which reg­u­la­tors and other stake­hold­ers ex­am­ined the deal in minu­tiae.

There was a strong for­eign fla­vor to that deal too, with HSBC and RBC of the UK on op­po­site sides of the ne­go­ti­at­ing ta­ble as share­hold­ers in Alawwal and SABB.

The NCB-Samba merger will likely be on a faster timescale. Once de­tails of the all-share deal are agreed — and there ap­pears lit­tle that re­mains to be ne­go­ti­ated — it is ex­pected the merger will be com­pleted within four months. As the big­ger party in the merger, NCB is lead­ing the trans­ac­tion with an offer of shares that rep­re­sents a premium of up to 27 per­cent over Samba’s share price be­fore the deal was an­nounced last week.

It should all be pretty straight­for­ward, al­though bank­ing merg­ers can be tricky to ne­go­ti­ate in the fi­nal stages. NCB last year pulled out of talks with Riyad Bank, after fairly de­tailed dis­cus­sions, with­out giv­ing a rea­son. More una­nim­ity might be ex­pected this time, not least be­cause of the po­si­tion of the Saudi Pub­lic In­vest­ment Fund as a big share­holder in both NCB and Samba. Hav­ing the big­gest fi­nan­cial in­sti­tu­tion in the King­dom as an in­ter­ested ar­biter in the pro­posed merger will prob­a­bly help con­cen­trate minds.

As to whether the deal will ac­cel­er­ate the trend to­ward merger, that re­mains to be seen. One se­nior banker said that while it might not im­me­di­ately trig­ger the widely ex­pected wave of con­sol­i­da­tion, it would cer­tainly trig­ger some se­ri­ous thought about it.

The EU is edg­ing to­ward fi­nal­iz­ing a list of coun­tries whose cit­i­zens will be al­lowed to en­ter Europe again in com­ing days.

Newspapers in English

Newspapers from Saudi Arabia

© PressReader. All rights reserved.