Why merger of Saudi banks could spark wave of GCC deals
AMID HEADWINDS, SECTOR IS CHASING COMPETITIVENESS AND LOWER COSTS
The offer from National Commercial Bank (NCB), Saudi Arabia’s largest lender by assets to acquire rival Samba Financial Group is likely to trigger a wave of mergers and acquisitions in the financial services sectors in Saudi Arabia and wider GCC, according to analysts.
In the proposed deal, NCB has offered to pay as much as $15.6 billion to Samba, approximately at a premium of 27.5 per cent to Samba’s recent share price.
Wave of consolidation
Even before the coronavirus pandemic hit, the GCC’s financial-services industry was witnessing a wave of consolidation as banks sought ways to improve competitiveness, reduce operating costs and boost capital amid slowing economic growth.
Analysts say the NCB offer for Samba will inspire more such deal-making in the context of economic compulsions that is making mergers looking attractive for banks. The proposed merger looks very much viable in the context of the economies of scale and cost savings the merger could bring.
“The Saudi government through various government entities owns 64 per cent of NCB and close to 50 per cent of Samba. Therefore, the chances of a deal being reached are better and the combined entity would benefit from a very high likelihood of government support, in case of need,” Ashraf Madani, a senior analyst at Moody’s said.
The combination of NCB and Samba Financial Group would create the third-largest lender in the GCC with total assets of about $210 billion, making it the region’s largest bank behind Qatar National Bank and First Abu Dhabi Bank.
Saudi Arabia’s insurance sector too is facing major challenges in terms of earnings and premium growth this year due to low oil prices and the impact of the Covid-19 pandemic.
S&P anticipates that the number of insured individuals under medical policies will decline and that some employers will opt for more basic and cheaper medical cover for staff in an effort to save costs impacting the gross written premiums.